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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file Number 1-8929
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ABM INDUSTRIES INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 94-1369354
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 Fremont Street, 26th Floor, San Francisco, California 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 597-4500
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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 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 X No
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Number of shares of Common Stock outstanding as of July 31, 1996: 19,338,278
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
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OCTOBER 31, JULY 31,
ASSETS: 1995 1996
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,840 $ 1,761
Accounts and other receivables, net 152,698 167,330
Notes and other receivables 5,377 6,366
Inventories and supplies 19,389 16,676
Deferred income taxes 11,429 12,167
Prepaid expenses 19,134 21,107
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Total current assets 209,867 225,407
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INVESTMENTS AND LONG-TERM RECEIVABLES 5,988 15,772
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 6,365 4,248
Transportation and equipment 9,825 9,981
Machinery and other equipment 37,076 38,678
Leasehold improvements 8,382 8,954
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61,648 61,861
Less accumulated depreciation and amortization (39,001) (38,925)
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Property, plant and equipment, net 22,647 22,936
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INTANGIBLE ASSETS 69,279 76,569
DEFERRED INCOME TAXES 18,745 20,528
OTHER ASSETS 8,447 9,507
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$ 334,973 $ 370,719
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</TABLE>
1
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
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OCTOBER 31, JULY 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1995 1996
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(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 679 $ 902
Bank overdraft 5,361 1,751
Accounts payable, trade 25,453 26,027
Income taxes payable 2,270 1,835
Accrued Liabilities:
Compensation 25,595 27,773
Taxes - other than income 10,725 11,619
Insurance claims 27,532 29,985
Other 16,625 18,535
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Total current liabilities 114,240 118,427
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LONG-TERM DEBT (LESS CURRENT PORTION) 22,575 36,314
RETIREMENT PLANS 7,627 9,136
INSURANCE CLAIMS 42,345 43,288
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.1 par value, 500,000
shares authorized; none issued - -
Common stock, $.01 par value, 28,000,000 shares
authorized; 18,732,000 and 19,338,000 shares
issued and outstanding at October 31, 1995
and July 31, 1996, respectively 94 97
Additional capital 40,627 46,611
Retained earnings 101,065 110,446
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Total stockholders' equity 141,786 157,154
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$ 334,973 $ 370,719
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</TABLE>
See Notes to Consolidated Financial Statements
2
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except per Share Amounts)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
1995 1996 1995 1996
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<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME $ 245,792 $ 281,911 $ 712,250 $ 798,381
EXPENSES:
Operating Expenses and Cost of Goods Sold 212,467 244,601 613,379 691,837
Selling and Administrative 23,817 25,717 74,691 77,907
Interest 870 1,004 2,904 2,701
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Total Expenses 237,154 271,322 690,974 772,445
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INCOME BEFORE INCOME TAXES 8,638 10,589 21,276 25,936
INCOME TAXES 3,628 4,553 8,936 11,152
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NET INCOME $ 5,010 $ 6,036 $ 12,340 $ 14,784
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EARNINGS PER COMMON SHARE $ 0.26 $ 0.29 $ 0.63 $ 0.72
DIVIDENDS PER COMMON SHARE $ 0.075 $ 0.0875 $ 0.225 $ 0.2625
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 19,254 20,478 18,994 20,129
</TABLE>
See Notes to Consolidated Financial Statements
3
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
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JULY 31, JULY 31,
1995 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 699,896 $ 778,468
Other operating cash receipts 2,011 1,871
Interest received 384 327
Cash paid to suppliers and employees (680,991) (749,376)
Interest paid (3,185) (2,893)
Income taxes paid (11,985) (14,116)
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Net cash provided by operating
activities 6,130 14,281
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,254) (8,458)
Proceeds from sale of assets 337 343
(Increase) decrease in investments and
long-term receivable 240 (5,488)
Intangible assets acquired (10,958) (11,694)
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Net cash used in investing activities (17,635) (25,297)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,742 5,987
Dividends paid (4,528) (5,402)
Increase (Decrease) in cash overdraft 0 (3,610)
Increase (Decrease) in notes payable (4) 223
Long-term borrowings 57,000 97,777
Repayments of long-term borrowings (51,031) (84,038)
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Net cash provided by financing activities 5,179 10,937
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NET DECREASE IN CASH AND CASH EQUIVALENTS (6,326) (79)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 7,368 1,840
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,042 $ 1,761
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</TABLE>
4
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31, 1995 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
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JULY 31, JULY 31,
1995 1996
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<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 12,340 $ 14,784
Adjustments:
Depreciation and amortization 8,331 9,755
Provision for bad debts 1,117 1,240
Gain on sale of assets (99) (196)
Deferred income taxes (3,165) (2,521)
Increase in accounts and other receivables (10,284) (16,071)
(Increase)decrease in inventories and
supplies (2,159) 332
Increase in prepaid expenses (3,330) (1,981)
Increase in other assets (3,113) (1,060)
Increase (decrease) in income taxes payable 116 (443)
Increase in retirement plans accrual 1,145 1,509
Increase in insurance claims liability 5,038 3,396
Increase (decrease) in accounts payable and
other accrued liabilities 193 5,537
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Total Adjustments to net income (6,210) (503)
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Net Cash Provided by (Used in) Operating
Activities $ 6,130 $ 14,281
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</TABLE>
See Notes to Consolidated Financial Statements
5
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ABM INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all material adjustments which are necessary to
present fairly the Company's financial position as of July 31, 1996 and the
results of operations and cash flows for the nine months then ended. These
adjustments are of a normal, recurring nature.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Form 10K filed for
the fiscal year ended October 31, 1995 with the Securities and Exchange
Commission.
2. STOCK SPLIT
On June 18, 1996, the Board of Directors approved a two for one stock
split, payable to owners of record at the close of business on July 15, 1996.
The share and per share information in the financial statements has been
retroactively restated to reflect the increased number of shares. The stated
par value per share remained at $.01 per share.
3. EARNINGS PER SHARE
Net Income per Common Share: Net income per common and common equivalent
share, after the reduction for preferred stock dividends in the amount of
$384,000 during the nine months ended July 31, 1996, is based on the weighted
average number of shares outstanding during the year and the common stock
equivalents that have a dilutive effect. Net income per common share assuming
full dilution is not significantly different than net income per share as shown.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures and acquisitions, and paying cash dividends. Management believes
that funds from these sources will remain available and adequately serve the
Company's liquidity needs. On September 22, 1994, the Company signed a $100
million unsecured revolving credit agreement with a syndicate of U.S. banks.
This agreement expires September 22, 1998, and at the Company's option, may be
extended one year. The credit facility provides, at the Company's option,
interest at the prime rate or IBOR+.45%. This agreement was amended effective
May 1, 1995 to increase the facility to $125 million. As of July 31, 1996, the
total amount outstanding under this facility was approximately $97 million which
was comprised of loans in the amount of $30 million and standby letters of
credit of $67 million. The effective interest rate on bank borrowings for the
quarter ended July 31, 1996 was approximately 6.9%. This agreement requires the
Company to meet certain financial ratios and places some limitations on dividend
payments and outside borrowing. The Company is prohibited from declaring or
paying cash dividends exceeding 50% of its net income for any fiscal year. On
February 13, 1996, the Company entered into a loan agreement with a major U.S.
bank which provides a seven-year term loan of $5 million. The Company borrowed
this amount on February 29, 1996 at a fixed interest rate of 6.78% with annual
payments of principal, in varying amounts, including interest due February 15,
1997 through February 15, 2003.
At July 31, 1996, working capital was $107.0 million, as compared to $95.6
million at October 31, 1995.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years had no material
impact on the financial statements of the Company. The Company attempts to
recover inflationary costs by increasing sales prices to the extent permitted by
contracts and competition.
7
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ENVIRONMENTAL MATTERS
The nature of the Company's operations, primarily services, would not
ordinarily involve it in environmental contamination. However, the Company's
operations are subject to various federal, state and/or local laws regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment, such as discharge into soil, water and air, and
the generation, handling, storage, transportation and disposal of waste and
hazardous substances.
These laws generally have the effect of increasing costs and potential
liabilities associated with the conduct of the Company's operations, although
historically they have not had a material adverse effect on the Company's
financial position or its results of operations.
The Company is currently involved in three proceedings relating to
environmental matters: one involving alleged potential groundwater contamination
at a Company facility in Florida; one involving alleged soil contamination at a
former Company facility in Arizona; and, one involving a claim under Proposition
65 in California relating to an alleged failure to post statutory notice in
Company managed parking garages. While it is difficult to predict the ultimate
outcome of these matters, based on information currently available, management
believes that none of these matters, individually or in the aggregate, are
reasonably likely to have a material adverse affect on the Company's financial
position or its results of operations.
ACQUISITIONS AND DISPOSITIONS
The operating results of businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition.
Effective November 1, 1995, the Company's ABM Janitorial Services Division
acquired substantially all of the maintenance service contracts from Corporate
Custodial of America of San Diego, California for a cash downpayment made at the
time of closing plus annual contingent payments based upon the gross profit of
acquired contracts to be made over a four-year period. For the fiscal year
ending October 31, 1996, this acquisition is expected to add approximately $3.5
million in revenues for ABM Janitorial Services' Southwest Region which is based
in Los Angeles.
Effective April 1, 1996, the Company's ABM Janitorial Division acquired the
maintenance service contracts of Al-Brite Janitorial Services of Tucson, Arizona
for a cash downpayment made at the time of closing plus annual contingent
payments based upon the gross profit of acquired contracts to be made over a
four year period. For the fiscal year ending
8
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October 31, 1996, this acquisition is also expected to add approximately
$870,000 to revenues of ABM Janitorial's Southwest Region.The maintenance and
security contracts of CBM Industries of Minneapolis, Minnesota were acquired
effective May 1, 1996, and are expected to contribute approximately $9.5 million
in janitorial service revenues and $4 million in security service revenues
annually, or approximately $4.7 million in the combined revenues for the year
ending October 31, 1996. The terms of purchase for this acquisition were a cash
down payment made at the time of closing plus annual contingent payments based
on the gross profit of acquired contracts to be made over a four year period.
The maintenance service contracts of Total Building Services of Detroit,
Michigan were acquired effective June 1, 1996, and are expected to contribute
approximately $13 million in janitorial service revenues annually, or
approximately $5.4 million in the year ending October 31, 1996. The terms of
purchase for this acquisition were a cash down payment made at the time of
closing plus annual contingent payments based on the gross profit of acquired
contracts to be made over a five year period.
The maintenance service contracts of Marathon Cleaners, Incorporated of
Nashville, Tennessee were acquired effective August 1, 1996, and are expected to
contribute approximately $1.4 million in janitorial service revenues annually,
or approximately $340,000 in the year ending October 31, 1996. The terms of
purchase for this acquisition were a cash downpayment made at the time of
closing plus annual contingent payments to be made over a five year period,
based on the gross profit of the acquired contracts.
Effective June 1, 1996, the Company disposed of its Mexican subsidiary,
Internacional de Elevadores, S.A. de C.V. to an unrelated investment group.
The terms of the closing agreement called for a cash downpayment and a note
payable over a period of ten years. Prior to the sale, this subsidiary
contributed $2.2 million in revenues for the seven months ended May 31, 1996.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company. All information in the
discussion and references to the years and quarters are based on the Company's
fiscal year and third quarter which end on October 31 and July 31, respectively.
9
<PAGE>
NINE MONTHS ENDED JULY 31, 1996 VS. NINE MONTHS ENDED JULY 31, 1995
Revenues and other income (hereafter called revenues) for the first nine
months of fiscal year 1996 were $798 million compared to $712 million in 1995, a
12% increase over the same period of the prior year. This growth in revenues
for the first nine months of 1996 over the same period of the prior year was
attributable to new business and price increases as well as revenues of
approximately $17 million generated from acquired businesses.
Net income for the first nine months of 1996 was $14,784,000, an increase
of 20%, compared to the net income of $12,340,000 for the first nine months of
1995. Based on the increased average number of common and common equivalent
shares outstanding, earnings per share rose 14% to 72 cents for the first nine
months of 1996 compared to 63 cents for the same period in 1995. Cost controls,
coupled with the revenue growth and economies of scale, enabled the Company to
realize improved earnings. As a percentage of revenues, operating expenses and
cost of goods sold increased to 86.7% for the first nine months of 1996 compared
to 86.1% in 1995. Consequently, as a percentage of revenues, the Company's
gross profit (revenue minus operating expenses and cost of goods sold) was 13.3%
compared to the prior year's 13.9%, reflecting the stiff competition in the
market place faced generally by most of the Company's divisions particularly
with larger contracts which often have lower gross profit percentages.
Selling and administrative expense for the first nine months of fiscal year
1996 was $77.9 million compared to $74.7 million for the corresponding nine
months of fiscal year 1995. As a percentage of revenues, selling and
administrative expense decreased from 10.5% for the nine months ended July 31,
1995, to 9.8% for the same period in 1996 primarily as a result of management's
cost containment measures. The increase in the dollar amount
of selling and administrative expense for the nine months ended July 31, 1996,
compared to the same period in 1995, is primarily due to expenses
necessary for growth and to a lesser extent various expenses associated with
acquisitions.
Interest expense was $2,701,000 for the first nine months of fiscal year
1996 compared to $2,904,000 in 1995, a decrease of $203,000 over the same period
of the prior fiscal year. Interest expense was higher in 1995 primarily due to
the interest paid on fully accrued state and federal taxes.
The pre-tax income for the first nine months of 1996 was $25,936,000
compared to $21,276,000, an increase of 22% over the corresponding period in
1995. The growth in pre-tax income outpaced the revenue growth for the first
three quarters of 1996 due primarily to benefits arising from the
10
<PAGE>
realization of certain operating consolidation economies related to recent
acquisitions and partly due to lower relative selling and administrative
expenses.
The effective income tax rates for the first nine months of fiscal years
1996 and 1995 were 43% and 42%, respectively. The higher rate in the current
year reflects the loss of certain tax credits and higher non-deductible
expenses.
The results of operations from the Company's three industry segments and
its eight operating divisions for the nine months ended July 31, 1996, as
compared to the nine months ended July 31, 1995, are more fully described below:
Revenues of the Janitorial Divisions segment, which includes ABM Janitorial
Services and Easterday Janitorial Supply, for the first nine months of
fiscal year 1996 were $446 million, an increase of approximately $68
million, or 18% over the first nine months of fiscal 1995, while its
operating profits increased by 20% over the comparable period in 1995.
This segment accounted for approximately 56% of the Company's total
revenues for the first nine months of the 1996 fiscal year. ABM JANITORIAL
SERVICES' revenues increased by 18% during the first nine months of fiscal
year 1996 as compared to the same period in 1995 both as a result of
acquisitions, as well as internal revenue growth throughout the majority of
its regions except the Canadian and Mid Atlantic Regions. This Division's
operating profits increased 20% when compared to the same period last year.
The increase in operating profits is principally due to the revenue
increase, as well as cost controls of its selling and administrative
expenses. EASTERDAY JANITORIAL SUPPLY DIVISION'S revenue for the first nine
months increased by approximately 11% compared to the same period in 1995
generally due to obtaining new customers, particularly through outside
broker sales in its Los Angeles metropolitan market. Operating profits
increased 9% due to the increase in sales volume and an effective cost
management of expenses, although offset somewhat by lower margins on the
Division's outside broker sales.
Revenues of the Public Services Divisions segment, which includes Ampco
System Parking and American Commercial Security Services (also known as ABM
Security Services), for the first nine months of 1996 were approximately
$166 million, an 11% increase over the same period in fiscal year 1995.
The Public Services Divisions segment accounted for approximately 21% of
the Company's revenues. The operating profits of this segment increased by
9% as both its divisions posted higher profits when compared to the first
nine months of the prior year. AMERICAN COMMERCIAL SECURITY SERVICES
reported an increase in revenues of 21% and its profits were up by 8% in
the first nine months of 1996 compared to the same period of 1995. The
revenue growth was
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largely due to new business, particularly in the Southern California and
South Central Regions, the acquisition in Minneapolis, as well as expanding
services to existing customers. The increase in operating income did not
keep pace with the increase in revenues during the first nine months of
1996 when compared to the same period in 1995, due to continued market
pressure on prices which reduced margins. AMPCO SYSTEM PARKING DIVISION'S
revenues increased by 4% and its profits increased 10% during the first
nine months of fiscal year 1996. The increase in revenues resulted
primarily from airport operations and its parking operations in Seattle and
Denver. The operating profit increase was due to sales increases,
particularly its airport operations, and the acquisition made in January
1995.
The Company's Technical Services Divisions segment includes Amtech
Engineering, Amtech Elevator, Amtech Lighting and CommAir Mechanical
Services. This segment reported revenues of $185 million, which represent
approximately 23% of the Company's revenues for the first nine months of
fiscal year 1996. Revenues were virtually flat compared to the same period
last year, primarily due to a decrease in revenues reported by its Amtech
Elevator Services Division which offset increased revenues in its other
divisions. Operating profit of this segment decreased 6% compared to the
first nine months of fiscal year 1995 also due to its Elevator Division.
AMTECH ENGINEERING SERVICES DIVISION'S revenues increased by 10% and it
reported a 24% increase in operating profits the first nine months of 1996
compared to the same period in 1995. Revenue increases were recorded by
nearly all its regions primarily reflecting sales to new customers,
particularly in its Northeast and Northern California Regions. The
increase in operating profits resulted from increased revenues and
reductions in insurance expenses, offset by a smaller increase in selling
and administrative expenses. Revenues for the AMTECH ELEVATOR SERVICES
DIVISION were down by 9% for the first nine months of fiscal year 1996
compared to the same period in 1995 largely due to management's decision to
phase out the construction business and to concentrate on the maintenance
and repair sector. The Division's operating profit declined 69% for the
first nine months compared to the corresponding period in fiscal year 1995
partly due to lower gross margins from its maintenance and repair jobs.
However profits were negatively impacted by losses incurred by its Mexican
subsidiary due to a weak market for its products in Mexico. Effective June
1, 1996 the Mexican subsidiary was sold for cash and notes. In connection
with this sale, additional losses were incurred related to inventory
adjustments. Although not significant to the Company as a whole, this
subsidiary has had a substantial negative impact on the Elevator Division
during the past year. The AMTECH LIGHTING SERVICES DIVISION revenues were
basically flat due to decreases in larger installation contracts.
Operating profits were also flat during the first nine months of fiscal
year 1996 primarily because of higher insurance
12
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costs. COMMAIR MECHANICAL SERVICES DIVISION'S operating profits for the
first nine months of 1996 increased by 6% while the revenues increased by
10% resulting primarily from sales related to energy management, as well as
increased maintenance service revenues. A relatively lower increase in
operating profits for the current year quarter was a result of the lower
margins on larger retrofit projects and energy management sales.
THREE MONTHS ENDED JULY 31, 1996 VS. THREE MONTHS ENDED JULY 31, 1995
Revenues and other income for the third quarter of fiscal year 1996 were
$282 million compared to $246 million in 1995, a 15% increase over the same
quarter of the prior year. The growth in revenues for the third quarter of 1996
over the same quarter of the prior year was attributable to new business and
price increases as well as revenues of approximately $8 million generated from
acquisitions. As a percentage of revenues, operating expenses and cost of goods
sold increased slightly from 86.4% for the third quarter of 1995 compared to
86.8% in 1996. Consequently, as a percentage of revenues, the Company's gross
profit decreased to 13.2% from the prior year's third quarter at 13.6% due to
strong competition and continued pricing pressures faced by several of its
divisions in the market place.
Selling and administrative expense for the third quarter of fiscal year
1996 was $25.7 million compared to $23.8 million in the third quarter of 1995,
an increase of $1.9 million or 8.0%, compared to the corresponding three months
of fiscal year 1995. As a percentage of revenues, selling and administrative
expense decreased from 9.7% for the three months ended July 31, 1995, to 9.1%
for the same period in 1996 primarily as a result of management's continued
efforts to contain selling and administrative expenses. The cost containment
efforts by management resulted in the smaller 8% increase in selling and
administrative expenses when compared to a 15% revenue increase for the current
quarter.
Interest expense was $1,004,000 for the third quarter of fiscal
year 1996 compared to $870,000 in 1995, an increase of $134,000 from the
same period of the prior fiscal year. The interest expense for the current year
quarter was higher mainly due to increased borrowings.
The effective income tax rate for the third three months of 1996 was 43%
compared to 42% in 1995. The higher rate in the current quarter reflects the
loss of certain tax credits and higher non-deductible expenses.
Net income for the third quarter of 1996 was $6,036,000, an increase of
20%, compared to the net income of $5,010,000 for the third quarter of 1995.
Cost controls, coupled with the revenue growth, enabled the Company
13
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to realize improved earnings. On an increased average number of common and
common equivalent shares outstanding, earnings per share rose 12% to 29 cents
for the third quarter of 1996 compared to 26 cents for the same period in 1995.
The results of operations from the Company's three industry segments and
its eight operating divisions for the three months ended July 31, 1996, as
compared to the three months ended July 31, 1995, are more fully described
below:
Revenues of the Janitorial Divisions segment for the third quarter of
fiscal year 1996 were $159 million, an increase of approximately $30
million or 23%, over the third quarter of fiscal 1995, while its operating
profits increased by 12% over the comparable quarter of 1995. Janitorial
Divisions accounted for approximately 56% of the Company's revenues for the
current quarter. ABM JANITORIAL SERVICES' revenues increased 24% during
the third quarter of fiscal year 1996 compared to the same quarter of 1995,
due to both acquisitions, as well as revenue growth throughout the majority
of its regions. The Division's operating profits increased 13% when
compared to the same period last year. In comparison with the 24% revenue
increase, the lower 13% increase in operating profits is principally due to
start up costs related to large new contracts with lower profit margins.
EASTERDAY JANITORIAL SUPPLY DIVISION'S third quarter revenues increased by
approximately 5% compared to the same quarter in 1995 generally due to an
increase in new customers. A small decrease of 3% in operating profits
results from slightly lower gross profit margins on sales obtained through
outside brokers in the Los Angeles market.
Revenues of the Public Services Divisions segment for the third quarter of
1996 were approximately $58 million, an 9% increase over the same quarter
of fiscal year 1995. The Public Services Divisions segment accounted for
approximately 21% of the Company's revenues. The operating profits of this
segment were up by 5% due to both American Commercial Security Services and
Ampco System Parking Division. AMERICAN COMMERCIAL SECURITY SERVICES
reported an increase in revenues of 19% and its profits were up 8% in the
third quarter of 1996 compared to the same period of 1995. The revenue
growth was largely due to the acquisition in Minneapolis, increased sales
to several large customers and increases posted by its South Central and
Southern California Regions. Benefits from revenue gains were more than
offset by competitive market conditions that eroded the historical gross
margins realized by this Division thus negatively impacting the operating
profits. AMPCO SYSTEM PARKING DIVISION'S revenues increased by 3% while its
profits increased 2% during the
14
<PAGE>
third quarter of fiscal year 1996. The increase in revenues resulted from
increased visitor parking at its airport operations and the parking
operations in Seattle and Denver. The increase in operating profits were
primarily due to the increase in revenues.
The Company's Technical Services Divisions segment reported revenues of $65
million, which represent approximately 23% of the Company's revenues for
the third quarter of fiscal year 1996, an increase of approximately 3% over
the same quarter of last year. This segment's profit decreased 3% for the
third quarter of 1996 when compared to the third quarter of fiscal year
1995, due to its Elevator Division. AMTECH ENGINEERING SERVICES DIVISION'S
revenues increased by 10% and it reported a 24% increase in operating
profits the third quarter of 1996 compared to the same period in 1995.
Revenue increases generally were due to large gains in new business in the
Northern California and Northeast Regions. The increase in operating
profits resulted from increased revenues and reductions in insurance
expense, offset by slightly higher selling and administrative expenses.
Revenues for the AMTECH ELEVATOR SERVICES DIVISION were slightly lower for
the third quarter of fiscal year 1996 compared to the same quarter of 1995
largely due to the sale of its Mexican subsidiary effective June 1, 1996.
The Elevator Division's operating profit for the third quarter of 1996
decreased 86% compared to the corresponding quarter of fiscal year 1995 due
to additional losses related to inventory adjustments reported by its
Mexican subsidiary in connection with its sale. Although not significant to
the Company as a whole, the Mexican subsidiary has had a substantial
negative impact on the Elevator Division during the past year. AMTECH
LIGHTING SERVICES DIVISION reported a slight decline in revenues, due to a
decrease in installment/energy management business. Operating profit
increased 33% compared to the same period of the prior year, primarily due
to a reduction in certain overhead expenses. COMMAIR MECHANICAL SERVICES
DIVISION'S operating profits for the third quarter of 1996 increased by 8%
on a revenue increase of 7%. Revenues increased during the third quarter
of 1996 largely due to a significant increase in energy management sales.
Improved sales and slightly lower selling and administrative expenses
accounted for the profit increase.
15
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
On June 18, 1996, the Company's Board of Directors declared a two-for one
stock split, payable to stockholders of record at the close of business on
July 15, 1996. The certificates for the additional shares were distributed
on or about August 5, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended July 31, 1996.
16
<PAGE>
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.
ABM Industries Incorporated
September 13, 1996 /s/ David H. Hebble
-------------------------------------------
Vice President, Principal Financial Officer
17
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