SP Plus Corp (SP) 2005 Q3 法說會逐字稿

[Operator Instructions].

I'd like to now introduce today's speaker, Mr. Marc Baumann. Sir, please begin.

Okay, good morning everyone and thanks, Carmen. And I want to just cover our basic introduction that we do every quarterly conference call, welcome to our call for the third quarter of 2005. I'm Marc Baumann, the Chief Financial Officer of Standard Parking, and I'm your primary investor relations contact. I hope all of you had a chance to review our earnings announcement, which was released after the market closed last night and we expect to file our 10-Q no later than Monday, November 14th since tomorrow is the Veteran's Day holiday.

We'll begin our call today with a brief overview by Jim Wilhelm, our President and Chief Executive Officer, and then I'll discuss some of the financials in a little more detail. After that we'll open up the call for a q-and-a session. During the call we'll make some statements that will be considered forward-looking regarding the Company's strategy, operations and financial performance. Those statements are subject to many uncertainties in the Company's operations and business environment.

I refer you to the complete forward-looking statement disclosure in our third quarter release which is incorporated by reference for purposes of this call. I'd also like to refer you to disclosures made in the Company's quarterly and annual filings with the SEC Finally, before we get started I want to mention that this call is being broadcast live over the internet and can be accessed at our website at standardparking.com and also at earnings.com. There will be a replay available on either website for 30 days after the call.

With that, I'd like to turn the call over to Jim.

Thank you, Marc and good morning, everyone. As you can see from our -- the release we issued last night, we weren't very busy at all last quarter so we spent most of our time just following the fall run of the world champion Chicago White Sox, which was enjoyable. All kidding aside, we obviously had a very busy, busy quarter and I think we did a nice job in the release we issued last night in disseminating the numbers for you in terms of one-time events and events other than the core business, and I think that release highlighted a lot of what happened.

Marc will supplement that in his presentation with a more detailed description of the numbers than I'll give. I'll talk mostly about what's going on around the business. And with that, I'd like to talk a little bit about what's gone on and what is going on down in New Orleans as a result of the hurricane.

As we released in our previous disclosures, all of our operations in New Orleans were shut down immediately before, obviously during and up until recently, after the hurricane. We are exposed, obviously, on the basis of our leases and management contracts to lost income as a result of that but I wanted to explain and talk with some detail today about what that means.

On management contracts we’re exposed to fees on leases to our loss of income as we've described, but we have insurance and there are two types of insurance that kind of govern the day on a claim that we'll ultimately be making for New Orleans. One is, business interruption insurance that covers the loss of fees to us on our management contracts, income from our leases and expenses that we would inure, that might not have been reimbursable in order to extend the courtesy to our employees of things like carrying them on our payroll for a period after the hurricane until we could make sure that they were settled down and accounted for, and in a place either re-employable with us at some other sector in the country or under special unemployment insurance that was being provided in Louisiana after the hurricane.

So we immediately after the hurricane, in order to put those things in place -- I want to acknowledge in this call Tom Hagerman and Bruce Kubena from my team, who are the EVP and the Senior Vice President responsible for New Orleans in terms of making -- trying to minimize our exposure while taking care of our employees during that very catastrophic event. Also our risk management people here in Chicago from the first moment were instrumental in beginning to understand our rights under our claim and timing for our claim and our coverages.

So we feel that the 8-K that we put forward and the discussion that we had in our press release was very thorough regarding New Orleans and our exposure. We've identified our deductible exposure at about $0.5 million for the totality of the claim. That covers the property that will have to be replaced and repaired and the loss of profit that I mentioned earlier.

The status of New Orleans now is a little brighter than what we had thought maybe a month ago. Our forecast and estimates assumed that it would be sometime late in '06 where we would have the totality of the operations open and while that statement is certainly true, we've already re-opened some of our facilities in New Orleans and to give you an idea on those -- all of our management contracts in New Orleans are reopened now with the exception of those that are around some of the hospitals that we manage, those hospitals are not re-opened. Some of our leases have re-opened as well and we will continue to see facilities opening over the next month or so.

Now whether the leases are open or not isn't the issue, the issue is whether or not people are parking in those facilities and we will certainly experience the loss in revenue for some period of time as a result of not having market to park cars from in New Orleans. Again, even as facilities are re-opening and leases, the difference between the income that we will be taking in as a result of opening and what we've lost as a result of normalcy will be part of our business interruption claim. So we're not affected by the loss of income even though we're beginning to open up facilities.

There are two major facilities in New Orleans that are not re-opened yet -- the HEAL garage in New Orleans that serves the hospital campus which is a significant income provider to us, and the City of New Orleans meter program that we were fortunate enough to win right around this time last year. We have no estimate yet of when the HEAL garage might re-open, it was significantly damaged by the ensuing flood and we are in negotiations now with the City of New Orleans for when their on-street meter program might be reinstated. So I have no better information than that. We will continue to talk about New Orleans as we move forward in the quarters and I'll try to give you an updated status of facilities re-opened and income to insurance losses, things like that.

A final note -- we don't know yet when we'll be filing the insurance claim, it obviously is a lengthy process. We are not assuming that that claim will get filed any time soon nor any time in 2006, although we will endeavor to get that accomplished but we certainly -- you know the first order of business is understanding the totality of our exposure on the loss side and then filing a claim along the lines of those losses.

Other than New Orleans, we had a really terrific quarter in terms of the basic fundamental metrics of the organization -- all of the key numbers that we look at and Marc will, again, give you some real focused numbers as he does his presentation. But the metrics that, again, that I try to talk to every quarter and that I focus on in terms of the key to the business are all in a positive direction, including our margin -- either all of our locations or same store locations -- year-over-year our margins are improving.

Net income for the third quarter was $4.2 million or about $0.40 per diluted share as compared to $3.6 million or $0.33 a share last year, which is an 18% increase on net income and 21% on earnings per share. Again, our release -- and Marc will talk about the unusual events around that -- the hurricane decreased those earnings by about $0.07 per share and we've talked -- had incremental spending on the Sarbanes-Oxley side of our preparation to be certified at the end of the year, and I'll talk about that a little bit as we go on and Marc will talk about it as well. And we also picked up a tax credit of about $0.09 to the quarter as a result of bringing forward some of the NOLs that we've talked about in the past and we have a detailed description of those in the release and in Marc's narrative.

We had an improvement again in location retention. Our location retention rate is up to 91% this year compared to 89% last year. As all of you know, one of the key focuses of the operations division within the organization is the retention of our existing clients. We know on a per capita basis it's a lot cheaper to work on client retention in terms of revenue than it is on the new business side so again, the organization is highly focused in that regard. We are, though, continuing to focus on the business development side.

We added a number of shopping centers to our folio last quarter via General Growth. General Growth is a REIT in the shopping center sector who we've had a relationship with in the past on facilities in Chicago and Providence and as a result of an RFP we were successful in winning additional contracts in Florida and Arizona and Seattle, and we look forward to continuing to expand that relationship in the future.

We extended our relationship with Northwestern University here in Chicago for an additional five years past its expiration -- its current expiration date some time in the future and that's a relationship we've had here in Chicago since the '20s. The garages that we manage for them are significant assets and we're very proud of the fact that Northwestern has retained us to manage those facilities and a new facility that's been added on to the campus just recently. Our net location count is up 23 from the end of 2004 and we're up 40 from the same time a year ago.

We're also continuing to be very, very active as we've talked in the past in bringing aboard resources and adding capability which enables us to move forward with municipalities in terms of on-street parking and enforcement ticket-writing traffic direction initiatives as well as adding to our service folio on the airport side of the business.

We added to our folio just this quarter at Midway Airport in Chicago where we were selected to do booting of traffic scofflaws much like we do at O'Hare, which is a program where by license plate inventory we are able to establish those scofflaws who have a significant amount of parking tickets in a municipality and then immobilize the vehicle until the proper authorities in town can work out a collection methodology with the customer, and Midway was added -- we added Midway, as I said, this quarter. And we'll be adding some other additional facilities next quarter in some airports that we'll be able to report on.

I wanted, though, to use the opportunity at this point to talk about what's been going on with our general and administrative expenses. While we reported in our earnings release that the cost of Sarbanes-Oxley certainly had an effect, that the costs are for things like bringing consultants aboard to help us with protecting the security of our data on the I.T. side and assisting us in interpreting the certification process and enabling us to move forward with the program. So obviously the cost of consultants is there and additional costs relative to Ernst and Young and their certification process with us through 2005. But we've also had to increase staff resources on the Sarbanes-Oxley side in terms of the internal audit capabilities of the company, both from a field perspective and from a back office perspective -- regional office audits -- so we've been spending in that regard as well.

We also took on some expenses this quarter as it related to acquisitions that we're contemplating and we discussed that in the release. Also the board of directors of the Company opted to provide bonuses to people at the Executive Vice President level of the Company and we accounted for those this quarter as opposed to not having the same expense in the past. So we had some one-off items in the G&A area.

But what I wanted to talk a little bit about was we've worked very hard this year in bringing aboard resources to the company that are capable of pursuing the opportunities in some of the new areas for us. So -- on-street parking, transportation, airports from an other than parking perspective -- so certainly on the transportation side of the business, curb-front management side of the business, scofflaw retention program or detection program that I mentioned earlier, and sweeping and scrubbing, which is a newer initiative for us.

So we've brought on board just this year resources -- or I've hired people in the area of on-street parking to provide system-wide expertise to the rest of our business development organization. I've brought aboard a transportation resource into the Company, again, to cascade that knowledge base across our organization for the purpose of preparing bids. I've brought on airport business development people capable of understanding how we might be expanding our opportunities at airports. I've brought aboard a sweeping and scrubbing resource this year, capable again of expanding and leveraging our existing client relationships to enable us to do some things related to our parking operations in our buildings.

We've also expanded our resources on the support side in the area of risk management in order to better manage claims, and be proactive about creating a safe workplace not only from a physical safety perspective but a disciplined working environment that our employees can enjoy working at every day, in order to avoid things like EPLI claims as well as these casualty claims that we're exposed to. So we've used this year, 2005, to reinvest resources -- into resources that we think will enable us to pursue opportunities for additional increases in margin and gross profit in the future, and enable us to realize some cost savings on the risk management side of the business.

Moving on, we had a good quarter again at the Bradley Airport. We try to talk about Bradley a little bit each quarter. We received back about $400,000 during the third quarter in reimbursed guarantor payments to the Company which brings the total for the year in that regard to $0.5 million during the first nine months. As a point of comparison, we made about 1.8 million in deficiency payments during the first nine months of 2004. So that was a pickup for us in cash of 2.3 million from Bradley.

Traffic is good at Bradley right now. We've done some work to reduce the expense side of the business -- on the shuttle side -- although the old terminal at Bradley is still open and we're having to shuttle people to and from that terminal, and it's an expense that can go away once all of the last carriers are out of the old terminal. And I still don't have a good date on when that might occur. But the garage itself is near capacity several days a week now.

We have looked at parking rates and we've talked about the fact that we've increased parking rates this year. We are also looking towards freeing up some capacity in the garage itself by moving employees to surface lots and we're certainly involved in the diligence of understanding the cost benefit of getting employees out of the garage and getting full rate customers into the garage, and we'll be able to talk about that on a move forward basis.

During the quarter we also completed the $6 million repurchase program of our stock that the board had authorized at the beginning of this year -- that is now completed. And as we announced previously, we have worked on a couple of acquisitions this quarter. The first is we entered into a non-binding letter of intent to acquire the Illinois and Wisconsin operations of System Parking, who are based here in Chicago -- as a matter of fact, right down the street from us.

That transaction would bring about 124 locations concentrated almost entirely in Chicago. There are some operations in Milwaukee and some in Springfield, Illinois but certainly in keeping with our attraction to growing our share in core markets where we can leverage our size. So certainly System would be a great fit with us from that perspective. We also during the quarter signed a definitive agreement to merge the Seattle parking activities of Sound Parking into our operations. Sound manages on their own around 5,500 parking spaces in Seattle and Bellevue, Washington, so a very focused effort in that area.

Certainly as we've stated, the confirmation of those acquisitions is dependent on certain conditions being met -- additional diligence being performed -- but we anticipate getting both of those deals closed in the fourth quarter. The acquisition market, as a result of our announcements of these, looks good for us. Obviously when we make pronouncements that we're in the business of acquiring businesses, you know our phones ring a little bit in terms of people saying what about us?

And so we're able to expand our listing a little bit and try to understand that based on our criteria -- and we've spoken very clearly about our criteria for acquisitions in the past -- that obviously they be accretive and that the realized multiple that we will pay for those is in line with our return on investment goals for the Company, that we can drive cost down because of their core market status or alignment with us in our core cities and that they have relationships or folios much like we enjoy in the management agreement area or in leases, soft leases, if you will. So again, we'll continue to look at those into 2006.

As Marc will describe for you in a minute, we have updated and narrowed our earnings guidance. We felt that as we got towards the end of the year and we had a little more accurate look at the crystal ball, that we could narrow our earnings guidance and we did narrow our range from a dime to a nickel and Marc will talk about the results of those. With that, I'll turn the call back over to Marc so he can get into the detailed financials and then we'll be glad to answer questions that you might have.

Thanks, Jim. And now that Jim has given you a nice overview of the quarter, I'll take you through some of the more financial details. As Jim mentioned, net income for the third quarter was $4.2 million or $0.40 per diluted share versus a net income of $3.6 million or $0.33 per share a year ago, an increase of 18% on reported net income, an increase of 21% on reported earnings per share.

Several items impacted the year on year comparison and they’re worth discussing in a little more detail. As you know, Hurricane Katrina brought the city of New Orleans to a halt and Jim talked about how that city is beginning to come back for us from a parking operations point of view. The third quarter results, however, were $700,000 less than that they were last year due to the loss of one month's operating profit, some costs that we incurred and a $0.5 million insurance deductible that we've provided in the quarter.

We also incurred $400,000 of external costs for Sarbanes-Oxley compliance in preparation for this year's certification and that took place in the third quarter this year. We didn't have any of those costs in the third quarter of last year.

Partially off-setting the negative impact of these two events, we recognized a $900,000 credit valuation allowance adjustment to reported net income taxes. The decision to record this credit for the adjustment to the valuation allowance for deferred tax assets was a result of the Company's post IPO profitability and our expectations about continued future profitability. Therefore we've recognized a portion of our net operating loss carry forward for book purposes during the quarter. The 10-Q will describe this in a lot more detail and as I mentioned earlier, you'll have that by Monday.

Excluding Katrina, SOX and the tax credit, net income would have been $4.4 million or $0.42 per share versus the $0.40 we actually reported. In effect, these items net each other out, so we really believe the reported results are a good reflection of how the business is performing.

Contributing to the growth and bottom line results, parking services revenue for the third quarter of '05 -- excluding reimbursement of management contract expenses -- increased by over 10% during the quarter as compared to the third quarter of last year. Increases in same location revenue at both managed and leased locations were 18% and 6%, respectively. And that was really the primary driver for the solid bottom line growth that we had.

Gross profit for the third quarter increased by 13% from a year ago due to continuing improved performance at same locations. Excluding the impact of Hurricane Katrina, gross profit increased by 18% compared to the same quarter last year. Gross margin at management locations increased nicely from 56.9% to 58.8%. However, gross margin at lease locations decreased from 10.8% to 8.1% due primarily to the impact of the hurricane, and the resulting insurance deductible for anticipated losses in New Orleans.

General and administrative expenses increased by 2.1 million or 27% over the prior year, and as Jim highlighted some of these -- I'll just run down them again. Several factors really need to be considered in order to get a picture of our recurring G&A costs. In the third quarter last year, G&A was reduced by some one-time credits totaling $400,000 relating to the receipt of a death benefit, and also the collection of a previously reserved one-time receivable, and we talked about that a year ago in the third quarter.

G&A expenses in this year's third quarter included 400,000 in Sarbanes-Oxley costs that didn't exist last year, as well as the $300,000 one-time bonus to executive management that Jim mentioned, and 100,000 in professional fees related to pending acquisitions. Net of all these adjustments, G&A expenses increased about 11% and Jim talked about some of the reasons for that. On a Q2 to Q3 comparison, looking just at 2005, G&A expenses were essentially flat after adjusting for these special Q3 items. I think we've said before that, we expect G&A to run along at a relatively stable rate from one quarter to the next within a year.

Depreciation and amortization expense increased by $260,000 due to -- well primarily due to the write off of assets remaining at a terminated location, and that's been offset by the fact that we're no longer amortizing a non-compete agreement with the former owner that was terminated in the fourth quarter of last year. I think this increase that we saw in depreciation and amortization in the quarter is a one-time event, and clearly as you look to future quarters we should continue to see a modest decrease in depreciation and amortization expenses as we've said previously.

Resulting operating income was 5.7 million for the third quarter of 2005, which was down 6% compared to the third quarter of last year. And of course the big impact items there were Hurricane Katrina of about $700,000 and Sarbanes-Oxley of 400,000. If you take away those items and try to make an apples to apples comparison on the two years, operating income increased about 13%.

Comparing the results for the nine-month period parking services revenue, excluding reimbursement of management contract expenses, increased by over 8% for the first nine months of '05 compared with '04, again, driven by growth in same location revenue and the net addition of 40 locations since the end of the third quarter last year.

Gross profit for the first nine months of '05 increased over 8% to 51 million from 47 million a year ago, including the impact of Katrina on the last month of the period. So obviously without Katrina, gross profit growth would have been even greater. G&A expenses were up 13% for the first nine months of this year versus last year, due to the additional costs of being a public company, such as the expenses related to Sarbanes-Oxley and of course we also added independent members to our board of directors.

Operating income for the first nine months of 2005 was up by almost 27% to 17.1 million, however, this is a little bit of an apples to oranges comparison, due to the many changes in our business last year resulting from the June 2004 IPO, and obviously in our past releases and quarterly reports we've detailed out all of those changes that did impact operating income.

Free cash flow for the third quarter and the first nine months of '05 totaled $8.6 million and $17.3 million, respectively. However, as we've discussed in prior calls normal fluctuations in working capital accounts such as accounts receivable and accounts payable can temporarily overstate or understate free cash flow. We believe working capital may continue to fluctuate due to timing issues and therefore are maintaining our expectation of free cash flow for the full year of $17 million or higher. Obviously if working capital does not fluctuate to a great degree in the fourth quarter we may see free cash flow substantially higher than 17 million for the year. Free cash flow was used to make debt repayments totaling $900,000 during the third quarter and $3 million during the first nine months of '05.

The use of free cash flow to reduce debt, along with the impact of '04s IPO and refinancing of the Company's senior credit agreement in '04, resulted in a $200,000 reduction in interest expense for the quarter, and a $3.9 million reduction for the first nine months of '05, compared to the nine months of '04. During the quarter we also used free cash flow to complete the $6 million stock repurchase program that was approved by the board,– and in that program we repurchased about 93,000 shares during the quarter from the open market and from our majority shareholder, and we spent about $1.7 million.

On the balance sheet, cash and cash equivalents increased to 13.6 million at September, a substantial increase over the balance at June and at December of last year. We routinely enter into LIBOR based contracts to fix the interest rate on a substantial portion of our variable rate borrowings under the senior credit facility. At the end of the third quarter of this year, we had $2.7 million in overnight investment as a result of being in a $45 million LIBOR contract with a maturity in mid-October of 2005.

Capital expenditure for the first nine months of '05 totaled $3.3 million mostly due to expenditures in the third quarter of 2.9 million. During the first nine months of last year capital expenditures were $900,000. And of course, we gave you an expectation at the beginning of the year that we would spend between 4 and $5 million this year on CapEx, obviously we're starting to see some of those deals taking place now, and we're continuing with our expectation that we will spend in that range for the year.

In terms of earnings per share expectation, as Jim mentioned, we're updating our outlook for 2005 as the result of Hurricane Katrina, increased spending on Sarbanes-Oxley, the fluctuations in the book tax provisions including an expected deferred tax expense of $0.5 million in the fourth quarter of '05 due to the deduction of goodwill for tax purposes but not for book purposes. So all those things going on lead us to expect reported earnings per share for '05 to be in the range of $1.27 to $1.32.

This updated guidance includes an estimated 14 cents charge for Katrina, a $0.07 cost for unplanned Sarbanes-Oxley costs, an estimated $0.05 for the anticipated fourth quarter deferred tax expense, offset by the $0.09 credit income tax expense that we recorded in the third quarter. If you exclude all of those adjustments, reported earnings per share is expected to be in the range of $1.44 to $1.49 as compared to our previous guidance of $1.40 to $1.50 per share, which also excluded those items.

Pro forma for income tax, earnings per share is now expected to be in the range of $0.90 to $0.95. This updated guidance includes an estimated $0.10 charge for Katrina and $0.05 related to the increased cost of Sarbanes-Oxley compliance. The tax adjustments don't impact the pro forma numbers, of course. And excluding these adjustments, earnings per share pro forma for income taxes is now expected to be in the range of $1.05 to $1.10 as compared to the previous guidance of $1.02 to $1.12, which also excluded those same items.

I'd like to remind everyone that for pro forma guidance purposes, the statutory tax rate of 39% has been reduced to 30% based on the Company's assumed ability to use its substantial net operating loss carry forward to shield income for a period beyond five years. This tax rate, although potentially useful for comparison purposes on a longer term basis, is substantially higher than the cash tax rate that we expect to be effective for 2005. The cash tax rate should be less than 5%.

Also please note that the Company's book tax provision may be affected by adjustments to its valuation allowance for deferred tax assets. The timing of the recognition of these tax benefits may result in significant fluctuation in reported GAAP results. And as Jim mentioned, on the guidance, that we've narrowed the range from $0.10 to $0.05 as we previously indicated we'd try to do as we move closer to year end.

That completes our formal comments. Now, I'll turn the call back over to Carmen for any questions.

We will now begin the question and answer segment of the conference.

[Operator Instructions].

Our first question comes from Bob Labick with CJS Securities.

Good morning, congratulations on a good quarter.

Thanks, Bob.

Hi, Bob.

Hi. One question I wanted to ask -- just first if you can just touch on Sarbanes a little more. Can you give us a sense of how much of these expenses are one-time and how much of the added infrastructure goes into '06 and beyond? I'm just trying to get a sense of, as you said, the run rate for G&A going forward.

Right. Well I think the answer to that is that there's a lot to happen before we can answer that definitively. We obviously have work to do in the fourth quarter and at year end and as you might imagine, whether it's the outside auditors or other advisors are having a difficult time pinning down the exact time estimates that are going to be required to finish. So I guess that I would say right now that it's a little bit premature to know.

Going forward our expectation obviously is that we would be more efficient, we would have learned a lot of things from the first year that could help the cost. It seems like the rates for professional fees though are growing at a very rapid rate so for right now, probably the reasonable expectation is that the costs would be similar in 2006 although we would hope that they could be brought down as we go forward.

Okay and then, so on a go forward basis you still believe gross -- G&A is going to gross profit. The 50% long term goal, you're still marching towards there -- this is --?

We are marching towards there. I mean clearly '05 has had a lot of factors driving up G&A that both Jim and I talked about but clearly our long term goal is two-fold. One, to get G&A below 50% of gross profit and also to moderate the rate of growth in G&A so that it gets back down to our historical levels as we move forward.

Okay, great. And then just moving to Bradley, obviously it's very positive news with the contribution, that seems great. Have we turned a corner there, is the $400,000 a reasonable run rate until the other terminal gets completely shut down, or how should we look at this? And then also, when do you begin to book revenues and profits -- is that after you have received the whole $5.9 million long term receivable and at that point you begin to book profits -- or how should we look at that going forward?

Well I'll answer the first part, Bob, and that is there is so much dependent and there are so many moving pieces at Bradley. While our projections would seem to indicate that there will be a continued positive trend, there's no way of forecasting the detailed cash increments on a quarterly basis. Again, I believe we've turned the corner, to use your words, and we see that now as far as we can see into the future but I think it is still premature for us to kind of estimate what the refund of the guarantor payments would be in the short term until some other things get done, and I'll let Marc answer the second part of your question.

Alright. It's a little bit premature to begin recording profit from this facility. We have some thoughts on that and it may be that if the results accelerate there's a potential for something in 2006 but it's probably not something we really know until at the end of 2006. Because clearly, we still have some substantial guarantor payment balances out there that have to be collected. We have to be confident that those are going to be collected in a reasonable period as we look forward, a period that we could know and then obviously we could start to bring back some of the profit that we've previously established a valuation allowance against. So nothing will happen in '05 for sure. In terms of '06, it will be a question of let's see where things stand as we get towards the end of the year.

Okay, great. And obviously the news is very good there, positive to cash flow and it seems like it could be upside at the end of '06 or certainly beyond that, back into profits as well. Okay, last question. Just wanted to know if you could give us a little more color on the acquisitions in terms of -- you said they're likely to close in the fourth quarter -- are these facilities of similar size and profitability to your current ones? So should we look into next year as a net add of 180 locations, give or take, at the same profitability, or how should we look at next year with these facilities coming into your whole portfolio?

Well I think it would be premature for us before we close with each of these to start quoting numbers about their relative profitability per location as compared to ours. What we will do for you though, is as each of the transactions close we will issue more detailed disclosure statements on just the sort of information you're asking about, Bob, in terms of what we expect the realized multiples to be, location counts, profitability per location, so as not to have you guys out there doing your own math without that sort of guidance and help.

And we'd be obviously available -- Marc and I both would make ourselves available for q-and-a about each of those transactions. Each of them are much different in terms of the transaction type and how we're going about it and once we have the transactions closed we will make a much more detailed pronouncement and avail ourselves to you guys for questions and answers.

Great. Well thank you very much, congratulations on a good quarter and I look forward to seeing you at our conference in January.

Thanks, Bob.

Our next question comes from Matt Litfin with William Blair and Company.

Hi, good morning. I wondered if you guys could explain the increase that you've seen here in gross profit per location, especially at the managed contracts. It seems like a very high growth rate and I wanted to get some color behind that?

Well I think it comes back, Matt, to the same things that we talked about before. We obviously are constantly working to bring additional revenues into a location from the point of view of ancillary services, Jim touched on that as an important goal for us and we're certainly doing that. The other thing of course is that the increase in revenue definitely helps because we do have reverse management contracts and in many cases the cost elements on a reverse management contract are fixed and so as revenue rises, the gross profit per location goes up as well.

Can you make a general comment about the utilization of the facilities that you do manage, what are you seeing out there in terms of -- I know a lot of your revenue is on managed contracts so we may not necessarily see it in the numbers but can you just comment generally on, in the industry, what are we seeing in terms of garages -- more full, less full than a year ago, et cetera?

It's hard to make a blanket statement, Matt, because of the geography involved. We've seen an uptick in office building parking in Chicago but we've seen it down in Boston and kind of holding its own in LA We don't focus -- again, in terms of -- our first focus is on the fundamental metrics for the Company's performance. So we don't focus a whole lot, other than trending reports that we see every now and then, on the totality of the U.S. parking market. So not all cities are the same and not all are reporting the same trends. The differences are geographic. I can tell you that the airport business for the first nine months has been good.

Obviously we're seeing more customers at the toll booth in airports subject to the increase in employment there -- that industry has experienced this year. So one component of your question to Marc on per facility profitability, it's being driven somewhat by a return to profitability of the airport side. But again, that is also subject to change. I was reading some articles this morning about Delta and Northwest and the cuts in services they've made in some airports.

So it may be that that trend starts to flatten off some. Certainly a return to hockey this fall has our stadiums upticking some. Where we only had basketball last year, we now have hockey back so we're seeing the benefits of that. But I don't know that I would be accurately portraying an answer to you on any sort of U.S. trending. Again, it's all kind of individual marketplaces, or function and geography.

That's very helpful, Jim. One more for Marc-- I know we'll probably get this in the Q but can you give me the total size of your NOL carry forwards at this point?

Well I think it's $72 million or something around that level.

Thank you. Congratulations on the quarter.

Okay. Thanks, Matt.

Thanks, Matt.

[Operator Instructions].

Our next question comes from Rob Amman with RK Capital Management.

Yes, very nice quarter.

Thank you.

Can you talk -- you talked about the acquisition criteria and you mentioned a realized multiple on line with your ROI goals. Can you give us a little more color on what those goals are?

Sure, we can. We've touched on this before. I think ultimately our target goal is a realized multiple of five to six times. We've also talked about having -- wanting to have a very high net present value from a potential acquisition. And of course there's other criteria like building our core market. So we'd like them to be in a core market or give us the foundation for a very strong core market. We want to stay true to our business model which is management contracts and leases and not owned real estate.

And so, I think overall we have those goals, we obviously ultimately want the deals to be accretive as well. But we have those goals, we obviously are conscious of the fact that these first two acquisitions will get scrutinized very carefully against those goals so we're aware of that as we go into them but I think it would be wrong to sort of conclude that it's an absolute for us that each acquisition must achieve every one of the goals that I just mentioned. We obviously in total want to feel that an acquisition does meet the goals that we've laid out in the investment community.

Rob, that kind of gets at the financial targeting when we do a deal. Also something we've talked about in the past is it's important for us as we're doing acquisitions, because we're in the relationship business, to bring aboard those people who have created the relationships around the businesses over the years. Both System and Sound are long term. You know, I've been in the business for quite some time and in both cases we are bringing aboard with us -- we're contemplating bringing aboard with us the key relationship people from each organization so that is very, very important to us as we do these buys.

When you mentioned accretive, is that an expectation that they're accretive immediately or was there not a (inaudible) time period, or how do you view that?

Yes, I think we're going to leave it at what I said which is that it will ultimately be accretive.

Okay.

As we look in to a transaction, if it's in a core market there's opportunity to take costs out and achieve some efficiencies but obviously it takes time to sometimes realize those so we don't want to be any more specific right now.

Fair enough. The Sound agreement that's a merger of operations, am I -- the language there doesn't make it sound like an acquisition. Can you maybe explain the difference between an acquisition and a merger of operations?

From our point of view, an acquisition is one where we're making an upfront cash outlay. And in the case of the Sound transaction, it's structured a little differently and obviously includes a long term employment of the principals of that business. So that's why we've described it as a merger rather than an acquisition.

So their compensation will probably be more in the form of an earn out for success over time?

Well it's a little more complicated than that. There certainly will be some guaranteed aspects to it for them but it doesn't involve the sort of sizable upfront outlay that you might think of when you use the term acquisition to describe it.

Okay, that's helpful. Okay just two more questions. The location growth in the quarter, I'm having a little bit of a hard time just reconciling how many locations were added relative to the ending location number and the year to date numbers over the last couple of quarters -- don't quite reconcile.

Well, and I know you've been following us a little more recently than some of the other folks on the call. One of the things that we do find is that occasionally we make adjustments to the location count to reflect just a lag in information to us for location reporting purposes. So it may be that some of the historical numbers do get adjusted slightly. But I think that what you will see is that we added the 40 locations that we've talked about since a year ago and that's now looking at year ago's numbers as we now know them to be.

And to quantify those for you, Rob, at about 1,907 locations as of the end of September. At the end of June we were at about the same number, at about 1,904. December of '04 we had 1,884 and September of '04, 1,867.

Okay. The debt structure now that the cap falls off, was a new cap being put in place or is there any type of strategy with respect to the debt?

We've not put a new cap in place, and I think it's consistent with what we had previously indicated to the public in our releases and discussions and that is that as we move into '06 we want to take a look at our nine and a quarter debt and what are our plans for that well in advance of its maturity, what is the right size of our senior credit facility and should we be resizing that. And so, we're leaving ourselves the opportunity to do that in '06. So at least at this point we've not put any caps in place, and that's the reason for it.

So barring any acquisition impact or payments, interest expense might increase slightly this quarter, I would guess and kind of serve as a base rate until you're paying down additional debt or refinance that debt somehow?

Well, 30 million of the variable rate debt is still capped until July of 2006. So the vast majority of the outstanding borrowings on the revolving facility are still capped for another 7 or 8 months.

...only 15 has fallen off?

Only 15 has fallen off.

Great, thank you.

Okay.

Great. I guess there aren't any more questions. Thanks, everyone, for participating this quarter. We look forward to sharing our year end results with you next time we talk. Bye.