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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 APRIL 30, 1997
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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 _________
Commission file Number 1-8929
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 April 30, 1997: 20,140,935
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
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OCTOBER 31, APRIL 30,
ASSETS: 1996 1997
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,567 $ 1,498
Accounts receivable, net 183,716 191,300
Inventories 16,492 20,134
Deferred income taxes 11,684 13,254
Prepaid expenses and other current assets 20,296 22,396
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Total current assets 233,755 248,582
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INVESTMENTS AND LONG-TERM RECEIVABLES 15,941 15,753
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 4,750 4,791
Transportation equipment 9,750 10,591
Machinery and other equipment 39,899 41,337
Leasehold improvements 8,202 8,941
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62,601 65,660
Less accumulated depreciation and amortization (40,031) (42,256)
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Property, plant and equipment, net 22,570 23,404
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INTANGIBLE ASSETS, NET 76,366 82,828
DEFERRED INCOME TAXES 22,046 23,086
OTHER ASSETS 9,092 8,690
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$ 379,770 $ 402,343
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continued)
1
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
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OCTOBER 31, APRIL 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1996 1997
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $902 $1,384
Bank overdraft 4,935 8,209
Trade accounts payable 27,091 25,549
Income taxes payable 1,864 1,993
Accrued Liabilities:
Compensation 27,862 29,766
Taxes - other than income 9,952 11,454
Insurance claims 23,256 24,516
Other 17,936 22,614
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Total current liabilities 113,798 125,485
Long-Term Debt (less current portion) 33,664 23,076
Retirement plans 10,140 12,428
Insurance claims 51,475 54,032
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Total Liabilities 209,077 215,021
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SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000
shares authorized; none issued - -
Common stock, $.01 par value, 28,000,000 shares
authorized; 19,489,000 and 20,140,000 shares
issued and outstanding at October 31, 1996
and April 30, 1997, respectively 195 201
Additional capital 48,548 58,748
Retained earnings 115,550 121,973
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Total stockholders' equity 164,293 180,922
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$379,770 $402,343
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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 SIX MONTHS ENDED
APRIL 30 APRIL 30
1996 1997 1996 1997
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<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME $ 262,069 $ 294,309 $ 516,470 $ 585,947
EXPENSES:
Operating Expenses and Cost of Goods Sold 226,779 253,255 447,236 506,006
Selling, General and Administrative 26,197 30,173 52,190 59,818
Interest 848 796 1,697 1,693
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Total Expenses 253,824 284,224 501,123 567,517
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INCOME BEFORE INCOME TAXES 8,245 10,085 15,347 18,430
INCOME TAXES 3,545 4,236 6,599 7,741
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NET INCOME $ 4,700 $ 5,849 $ 8,748 $ 10,689
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EARNINGS PER COMMON SHARE $ 0.23 $ 0.26 $ 0.43 $ 0.48
DIVIDENDS PER COMMON SHARE $ 0.0875 $ 0.10 $ 0.175 $ 0.20
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 20,116 21,598 19,956 21,507
</TABLE>
Per share amounts have been restated to retroactively reflect the two-for-one
common stock split on July 15, 1996
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
(In thousands)
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APRIL 30, APRIL 30,
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 507,321 $ 583,433
Other operating cash receipts 1,068 748
Interest received 228 309
Cash paid to suppliers and employees (493,391) (553,546)
Interest paid (1,934) (1,889)
Income taxes paid (9,191) (10,222)
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Net cash provided by operating
Activities 4,101 18,833
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,136) (5,102)
Proceeds from sale of assets 274 219
(Increase) decrease in investments and
long-term receivable (4,754) 188
Intangible assets acquired (2,497) (4,410)
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Net cash used in investing activities (13,113) (9,105)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,782 4,106
Dividends paid (3,582) (4,266)
Increase (Decrease) in cash overdraft (3,234) 3,269
Increase in notes payable - 482
Long-term borrowings 61,000 23,622
Repayments of long-term borrowings (49,025) (37,050)
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Net cash provided by financing activities 8,941 (9,797)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (71) (69)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,840 1,567
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,769 $ 1,498
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4
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
(In thousands)
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APRIL 30, APRIL 30,
1996 1997
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $8,748 $10,689
Adjustments:
Depreciation and amortization 6,608 7,614
Provision for bad debts 853 880
Gain on sale of assets (187) (13)
Deferred income taxes (2,356) (2,610)
Increase in accounts and other receivables (8,208) (5,040)
(Increase)decrease in inventories and
Supplies 355 (3,306)
Increase in prepaid expenses (1,926) (2,019)
(Increase)decrease in other assets (1,259) 402
Increase(decrease) in income taxes payable (236) 129
Increase in retirement plans accrual 1,137 2,288
Increase in insurance claims liability 2,011 3,817
Increase(decrease) in accounts payable and
other accrued liabilities (1,439) 6,002
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Total Adjustments to net income (4,647) 8,144
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Net Cash Provided by Operating
Activities $4,101 $18,833
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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 April 30, 1997 and the
results of operations, and cash flows for the six 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, 1996 with the Securities and Exchange
Commission.
2. 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
$256,000 during the six months ended April 30, 1997, 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
reported.
On June 18, 1996, the Company's Board of Directors approved a two-for-one stock
split, payable to shareholders of record as of the close of business on July 15,
1996. A total of 9,669,000 shares of common stock were issued in connection
with the stock split. All share and per share amounts have been restated to
retroactively reflect the common stock split.
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. The Company has an unsecured revolving credit
agreement with a syndicate of U.S. banks. This agreement has a $125 million
line of credit expiring September 22, 1999. At the Company's option, the credit
facility provides interest at the prime rate or IBOR+.45%. As of April 30,
1997, the total amount outstanding was approximately $83 million, which was
comprised of loans in the amount of $18 million and standby letters of credit of
$65 million. 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. In February 1996, the Company entered
into a loan agreement with a major U.S. bank which provided a seven-year term
loan at a fixed interest rate of 6.78 %. Annual payments of principal and
interest in varying amounts are due February 15, 1998 through February 15, 2003
on the remaining balance of $4,777,054. The Company also has a 9.35% note
payable to an insurance company with a remaining amount of $1,272,000. Interest
is payable monthly and principal amounts of $636,000 are due annually through
October 1, 1998. The Company's effective interest rate for all borrowings for
the six months ended April 30, 1997 was 6.9%.
At April 30, 1997, working capital was $123.1 million, as compared to $120.0
million at October 31, 1996.
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.
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.
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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 warning signs
in Company operated 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, 1996, the Company acquired the operations and net
assets of Sica Electrical and Maintenance Corp., of Ozone Park, New York. Sica
Electrical and Maintenance Corp. is an electrical and lighting maintenance
company which operates in the greater New York City metropolitan area, New
Jersey, up-state New York, Pennsylvania, and Connecticut. In connection with
this acquisition, the Company issued 348,323 of its common shares at the time of
closing and will make additional payments in common shares over a five-year
period based on the operating profits (income before taxes and interest) of the
acquired business. A maximum of 348,323 common shares may be issued in
connection with future payments. Effective November 1, 1996, the Company's
earnings per common share calculation includes the 696,646 shares issued and to
be issued under the contract with the sellers. The Company estimates that in
fiscal 1997 this acquisition will contribute approximately $15 million in
revenues.
Effective February 1, 1997, the Company acquired maintenance contracts and
selected assets of SMK Corp. of Las Vegas (also known as DeLuca Building
Maintenance), with customers located in Las Vegas, Nevada and the surrounding
area. The Company estimates that in fiscal 1997 this acquisition will
contribute approximately $1 million in revenues.
8
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Effective March 1, 1997, the Company acquired HVAC (heating, ventilation, and
air conditioning) customer contracts, assets and certain liabilities from
Preferred Mechanical Services of Northridge, California. Most of the business
acquired was in Southern California, plus a few contracts in Las Vegas, Nevada.
The Company estimates that this acquisition will contribute approximately $4.3
million in revenues in fiscal year 1997.
Effective April 1, 1997, the Company acquired janitorial contracts and selected
assets of Geoserv of Phoenix, Inc. and Janus, Inc., with customers in the
metropolitan areas of Albuquerque, New Mexico, Phoenix and Tucson, Arizona. The
Company estimates that in fiscal 1997 this acquisition will contribute
approximately $3 million in revenues.
Effective May 1, 1997, the Company acquired the janitorial contracts and
selected assets of Polaris, Inc., with customers in the metropolitan areas of
Indianapolis, Indiana, and Columbus and Cincinnati, Ohio. The Company estimates
that this acquisition will contribute approximately $1.9 million in revenues in
fiscal year 1997.
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 second quarter which end on October 31 and April 30,
respectively.
SIX MONTHS ENDED APRIL 30, 1997 VS. SIX MONTHS ENDED APRIL 30, 1996
Revenues and other income (hereafter called revenues) for the first six
months of fiscal year 1997 were $586 million compared to $516 million in 1996, a
13% increase over the same period of the prior year. This growth was
attributable to business and price increases as well as revenues generated from
acquisitions. For the six months ended April 30, 1997, the increase in revenues
relating to acquisitions made during fiscal years 1996 and 1997 was
approximately $25 million on a total revenue increase of $69 million.
Net income for the first six months of 1997 was $10,689,000 an increase of
22%, compared to the net income of $8,748,000 for the first six months of 1996.
Earnings per share rose 12% to 48 cents for the first six months of 1997
compared to 43 cents for the same period in 1996. The increase in earnings per
share was not proportional to the increase in net income due to the increased
average number of common and common equivalent shares outstanding. This
improvement in earnings is primarily the result of increased revenues as well as
control of costs in order to improve margins.
As a percentage of revenues, operating expenses and cost of goods sold decreased
to 86.4% for the first six months of 1997 compared to 86.6% in 1996.
Consequently, as a percentage of revenues, the Company's gross
9
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profit (revenue minus operating expenses and cost of goods sold) was 13.6%
compared to the prior year's 13.4%. This improvement is partly attributable to
increased sales without a corresponding increase in insurance costs during 1997.
Selling, general and administrative expense for the first six months of
fiscal year 1997 was $59.8 million compared to $52.2 million for the
corresponding six months of fiscal year 1996. As a percentage of revenues,
selling, general and administrative expense increased slightly, from 10.1% for
the six months ended April 30, 1996, to 10.2% for the same period in 1997
primarily due to increased selling expenses associated with national accounts
and promotion of the ABM Family of Services, and to a lesser extent, expenses
associated with acquisitions.
Interest expense was $1,693,000 for the first six months of fiscal year
1997, only slightly lower than the 1996 interest expense of $1,697,000, due to a
small decrease in average interest rates compared to the prior year.
The pre-tax income for the first six months of 1997 was $18,430,000
compared to $15,347,000 in 1996, an increase of 20% over the corresponding
period in 1996. The growth in pre-tax income outpaced the revenue growth for
the first half of 1997 due primarily to lower operating expenses and cost of
goods sold as a percentage of revenue, particularly in the Elevator and Lighting
divisions.
The effective income tax rates for the first six months of fiscal years
1997 and 1996 were 42% and 43%, respectively. The lower rate in the current year
reflects an expected increase in tax credits.
The Company's divisions (consisting of one or more subsidiaries of the
Company), listed below, operate in three functionally oriented segments of the
building services industry--Janitorial Divisions, Public Service Divisions and
Technical Divisions.
PUBLIC
JANITORIAL SERVICE TECHNICAL
DIVISIONS DIVISIONS DIVISIONS
------------------------------------------------
American American ABM
Building Commercial Engineering
Maintenance Security Services
Services
Easterday Amtech
Janitorial Ampco System Elevator
Supply Parking Services
Amtech
Lighting
Services
CommAir
Mechanical
Services
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The results of operations from the Company's three industry segments and
its eight operating divisions for the six months ended April 30, 1997, as
compared to the six months ended April 30, 1996, are more fully described below:
The Janitorial Divisions segment, which includes American Building
Maintenance (also known as ABM Janitorial Services) and Easterday
Janitorial Supply, accounted for approximately 56% of the Company's total
revenues for the first half of the 1996 fiscal year. Revenues of this
segment for the first six months of fiscal year 1997 were $330 million, an
increase of approximately $43 million, or 15% over the first six months of
fiscal 1996. The operating profits of this segment increased by 14% over
the comparable period in 1996. Revenues of AMERICAN BUILDING MAINTENANCE
increased 15% for the first six months of fiscal year 1997 compared to the
same period in 1996, both as a result of acquisitions in the Midwest and
Southwest Regions, and internal revenue growth throughout the majority of
its regions. This Division's operating profits increased 14% when compared
to the same period last year. The increase in operating profits is
proportionate to the revenue increase, and is attributable to the revenue
growth, as margins remained comparable. EASTERDAY JANITORIAL SUPPLY'S
revenue for the first six months increased by approximately 12% compared to
the same period in 1996 generally due to obtaining new customers,
particularly in the metropolitan areas of Los Angeles and San Francisco,
California, and Houston, Texas. Operating profits increased 23% due to the
increase in sales volume at a higher gross margin percentage.
The Public Service Divisions segment, which includes Ampco System Parking
and American Commercial Security Services (also known as "ACSS" and "ABM
Security Services"), accounted for approximately 20% of the Company's
revenues. Revenues of this segment for the first six months of 1997 were
approximately $117 million, an 8% increase over the same period in fiscal
year 1996. The operating profits of this segment increased by 7% as both
its divisions posted higher profits when compared to the first six months
of the prior year. AMPCO SYSTEM PARKING'S revenue increased by 5% and its
profits increased 11% during the first six months of fiscal year 1997. The
increase in revenues resulted primarily from increased airport business and
new parking locations in the South Central and Northwest regions. The
operating profit increase was due to increased sales and its airport
operations, which reported higher profit margins. AMERICAN COMMERCIAL
SECURITY reported an increase in revenues of 12% and its profits were up 2%
in the first six months of 1997 compared to the same period of 1996. The
revenue growth was largely due to the acquisition of CBM Industries in
Minneapolis in May of 1996 and new business, particularly in the South
Central and Southern California regions. The increase in operating income
did not keep pace with the increase in revenues during the first six months
of 1997 when compared to the same period in 1996, due to increased labor
costs related to the acquisition, and an increase in overtime throughout
the division.
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The Company's Technical Services Divisions segment includes ABM Engineering
Services, Amtech Elevator Services, Amtech Lighting Services and CommAir
Mechanical Services. This segment reported revenues of $139 million, which
represent approximately 24% of the Company's revenues for the first six
months of fiscal year 1997. Revenues were up 15% compared to the same
period last year, as revenues increased in all its divisions. Operating
profit of this segment increased 56% compared to the first six months of
fiscal year 1996 due to dramatic increases in the Elevator and Lighting
divisions. ABM ENGINEERING'S revenues increased by 6% and it reported a 2%
increase in operating profits the first six months of 1997 compared to the
same period in 1996. Revenue increased in all its regions primarily as a
result of sales to new customers. The increase in operating profits
resulted from increased revenues, partially offset by a lower gross profit
percentage on fixed price contracts and a slight increase in selling,
general and administrative expenses as a percentage of revenues. Revenues
for AMTECH ELEVATOR were up by 14% for the first six months of fiscal year
1997 compared to the same period in 1996 largely due to growth in its
elevator service base, which also contributed to increased repair sales.
The Division's operating profit nearly tripled for the first six months
compared to the corresponding period in fiscal year 1996, primarily due to
the absence of losses reported by its Mexican subsidiary in the prior year,
and a decrease in insurance costs. As previously reported, the Mexican
subsidiary was sold May 31, 1996. A decrease in selling, general and
administrative expenses as a percentage of revenue also contributed to this
impressive increase. AMTECH LIGHTING posted a 25% increase in revenues due
primarily to the acquisition on November 1, 1996 as discussed. Operating
profits more than doubled during the first six months of fiscal year 1997
primarily because of the acquisition, and a decrease in selling, general
and administrative expenses as a percentage of revenue. Lower material
costs also contributed to the significant increase in operating profit.
COMMAIR MECHANICAL'S operating profits for the first six months of 1997
increased by 36%, on a revenue increase of 18%. Additional revenues
resulted from an increase in construction project work as well as the
acquisition of Preferred Mechanical Services as of March 1, 1997. The
relatively higher increase in operating profits for the first six months of
the current year was primarily a result of lower selling, general and
administrative expenses as a percentage of revenue.
THREE MONTHS ENDED APRIL 30, 1997 VS. THREE MONTHS ENDED APRIL 30, 1996
Revenues and other income for the second quarter of fiscal year 1997 were
$294 million compared to $262 million in 1996, a 12% increase over the same
quarter of the prior year. This growth was attributable to volume and price
increases as well as revenues generated from acquisitions.
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Net income for the second quarter of 1997 was $5,849,000, an increase of
24%, compared to the net income of $4,700,000 for the second quarter of 1996.
Earnings per share rose 13% to 26 cents for the second quarter of 1997 compared
to 23 cents for the same period in 1996. The increase in earnings per share was
not proportional to the increase in net income due to the increased average
number of common and common equivalent shares outstanding. Cost controls
coupled with revenue growth enabled the company to realize improved earnings.
Operating expenses and cost of goods sold as a percentage of revenues
decreased from 86.5% for the second quarter of 1996 to 86.1% in 1997.
Consequently, as a percentage of revenues, the Company's gross profit increased
to 13.9% from the prior year's second quarter at 13.5% due to increased margins
in several of its divisions.
Selling, general and administrative expenses for the second quarter of
fiscal year 1997 were $30.2 million compared to $26.2 million in the second
quarter of 1996, an increase of $4 million or 15%, compared to the corresponding
period of fiscal year 1996. As a percentage of revenues, selling, general and
administrative expense increased from 10.0% for the three months ended April 30,
1996, to 10.3% for the same period in 1997 due to increased selling expenses
associated with national accounts and promotion of the ABM Family of Services.
Interest expense was $796,000 for the second quarter of fiscal year 1997
compared to $848,000 in 1996, a decrease of $52,000 or 6%, from the same period
of the prior fiscal year. The decrease in interest expense for the comparable
periods is due to lower average borrowings in 1997.
The effective income tax rate for the second three months of 1997 was 42%
compared to 43% in 1996. The lower rate in the current quarter was due to an
expected increase in tax credits.
The results of operations from the Company's three industry segments and
its eight operating divisions for the three months ended April 30, 1997, as
compared to the three months ended April 30, 1996, are more fully described
below:
Revenues of the Janitorial Divisions segment for the second quarter of
fiscal year 1997 were $164.8 million, an increase of approximately $18.8
million or 13%, over the second quarter of fiscal 1996, while its operating
profits increased by 15% over the comparable quarter of 1996. Janitorial
Divisions accounted for approximately 56% of the Company's revenues for the
current quarter. AMERICAN BUILDING MAINTENANCE'S revenues increased 13%
during the second quarter of fiscal year 1997 compared to the same quarter
of 1996, due to revenue growth throughout the majority of its regions,
particularly in the Southwest Region. The Division's operating profits
increased 14% when compared to the same period last year. In comparison
with the 13% revenue increase, a higher 14% increase in operating profits
is
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due to lower insurance and selling, general and administrative expenses as
a percentage of revenue. EASTERDAY JANITORIAL SUPPLY'S second quarter
revenue increased by approximately 10% compared to the same quarter in 1996
generally due to an increase in new customers, particularly in the
metropolitan areas of Los Angeles and San Francisco, California, and
Houston, Texas. An increase of 24% in operating profits resulted from a
higher sales volume at a higher gross margin percentage.
Revenues of the Public Services Divisions segment for the second quarter of
1997 were approximately $58.5 million, a 7% increase over the same quarter
of fiscal year 1996. The Public Services Divisions segment accounted for
approximately 20% of the Company's revenues. The operating profits of this
segment were up by 24% due to increased operating profits of both its
American Commercial Security Services and Ampco System Parking divisions.
AMERICAN COMMERCIAL SECURITY reported an increase in revenues of 9% and its
profits were up 7% in the second quarter of 1997 compared to the same
period of 1996. The revenue growth was largely due to increased sales to
several large customers, and new customers in its South Central and
Southern California Regions. Benefits from revenue gains were partially
offset by competitive market conditions that eroded the gross margins
causing operating profits to grow a smaller percentage than sales. Higher
selling, general and administrative expenses necessitated by the business
growth also had a negative impact on the Division's profit. AMPCO SYSTEM
PARKING'S revenues increased by 6% while its profits increased 35% during
the second quarter of fiscal year 1997. The increase in revenues resulted
primarily from increased airport parking business and new parking locations
in the South Central and Northwest regions. The operating profit increase
was due to increased sales and its airport operations, which reported
higher profit margins.
The Company's Technical Divisions segment reported revenues of $70.8
million, which represent approximately 24% of the Company's revenues for
the second quarter of fiscal year 1997, an increase of approximately 15%
over the same quarter of last year. This segment's profit increased 51%
for the second quarter of 1997 when compared to the second quarter of
fiscal year 1996, with three divisions reporting substantial profit
increases. ABM ENGINEERING'S revenues increased by 5% and it reported a
12% increase in operating profits the second quarter of 1997 compared to
the same period in 1996. Revenue increases generally were due to gains in
new business in most regions. The increase in operating profits resulted
from increased revenues, an improved gross profit percentage and slightly
lower selling, general and administrative expenses as a percentage of
sales. Revenues for AMTECH ELEVATOR were up 13% for the second quarter of
fiscal year 1997 compared to the same quarter of 1996, largely due to
growth in its elevator service base, which also contributed to increased
repair sales. The Elevator Division's operating profit for the second
quarter of 1997 increased 74%
14
<PAGE>
compared to the corresponding quarter of fiscal year 1996 primarily due the
sale of its Mexican subsidiary, which had been reporting losses, and
decreased insurance costs. A decrease in selling, general and
administrative expenses as a percentage of revenue also contributed to this
impressive increase. AMTECH LIGHTING reported an increase in revenues of
27%, due primarily to the acquisition mentioned previously. Operating
profit nearly doubled compared to the same period of the prior year,
primarily due to the acquisition. An increase in its gross margin
percentage due to lower material costs also contributed to the significant
increase in operating profit. COMMAIR MECHANICAL'S operating profits for
the second quarter of 1997 increased by 75% on a revenue increase of 19%.
Revenues increased during the second quarter of 1997 largely due to the
acquisition on March 1, 1997. Profit increased as a result of higher sales
with lower associated cost.
15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders.
a) The Annual Meeting of Stockholders was held on
March 18, 1997.
b) The following directors nominated by management were
elected by a vote of stockholders: Martinn H. Mandles, Sydney J. Rosenberg,
Theodore Rosenberg and William W. Steele.
The following directors remained in office: Maryellen B. Cattani, Esq., John F.
Egan, Luke S. Helms, Charles T. Horngren, Henry L. Kotkins, Jr., William E.
Walsh.
c) Proposal 1 - Election of Directors
Against
or Broker
Nominee: For Withheld Abstentions Nonvotes
Martinn H. Mandles 15,764,477 143,069 0 0
Sydney J. Rosenberg 15,772,463 135,083 0 0
Theodore. Rosenberg 15,638,791 268,755 0 0
William W. Steele 15,773,087 134,459 0 0
d) Proposal 2 - Approval of the Company's Long-Term Senior Executive Stock
Option Plan.
For: 10,521,101 Against: 3,527,855 Abstain: 549,891
Broker Nonvotes: 1,308,699
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.40 - 1996 ABM Industries Incorporated Long-Term Senior
Executive Stock Option Plan
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended April 30, 1997.
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
June 13, 1997 /s/ David H. Hebble
- ------------- -----------------------------------------------
Vice President, Principal Financial Officer
17
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<PERIOD-END> APR-30-1997
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<PAGE>
EXHIBIT 10.40
ABM INDUSTRIES INCORPORATED
LONG-TERM SENIOR EXECUTIVE STOCK OPTION PLAN
EFFECTIVE DECEMBER 17, 1996
1. PURPOSE; DEFINITIONS
The purpose of The Plan is to give ABM Industries Incorporated and its
Affiliates a long-term stock option plan to help in attracting, retaining
and motivating senior executives, and to provide the Company and its
Affiliates with the ability to provide incentives more directly linked to
the profitability of the Company's businesses and increases in stockholder
value.
For purposes of The Plan, the following terms are defined as set forth
below:
a. "Affiliate" or "Affiliates" means any and all subsidiary corporations
or other entities controlled by the Company and designated by The
Committee from time to time as such.
b. "Board" or "The Board" means the board of directors ("Directors") of
the Company.
c. "Cause" means:
(1) misconduct or any other willful or knowing violation of any
Company policy or employment agreement,
(2) unsatisfactory performance such that the Company notifies the
Optionee of the Company's intention not to renew the Optionee's
employment agreement with the Company,
(3) a material breach by The Optionee of his or her duties as an
employee which is committed in bad faith or without reasonable
belief that such breach is in the best interests of the Company
and its affiliated companies (other than a breach arising from
the failure of The Optionee to work as a result of incapacity due
to physical or mental illness) and which is not remedied in a
reasonable period of time after receipt of written notice from
the Company specifying such breach, or
(4) the conviction of The Optionee of a felony that has been affirmed
on appeal or as to which the period in which an appeal can be
taken has lapsed.
d. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 6b and 6c of The Plan, respectively.
<PAGE>
e. "Code" or "The Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
f. "Commission" or "The Commission" means the Securities and Exchange
Commission or any successor agency.
g. "Committee" or "The Committee" means the committee referred to in
Section 2 of The Plan.
h. "Company" or "The Company" means ABM Industries Incorporated, a
Delaware corporation.
i. "Disability" means the inability of The Optionee to perform his or her
duties as an employee on an active full-time basis as a result of
incapacity due to mental or physical illness which continues for more
than ninety (90) days after the commencement of such incapacity, such
incapacity to be determined by a physician selected by the Company or
its insurers and acceptable to The Optionee or the Optionee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
j. "Eligible Person" has the meaning stated in Section 4 of The Plan.
k. "Exchange Act" or "The Exchange Act" means the Securities Exchange Act
of 1934, as amended from time to time, and any successor thereto.
l. "Fair Market Value" means, as of any given date, the average of the
highest and lowest reported trades of the Stock on the New York Stock
Exchange Composite Tape for such date, or if there were no trades on
such date, the average of the nearest trading day after such date. If
there is no regular public trading market for such Stock, the Fair
Market Value of the Stock shall be determined by The Committee in good
faith.
m. "Non-Employee Director" shall mean a member of The Board who qualifies
as a disinterested person as defined in Rule 16b-3, as promulgated by
The Commission under The Exchange Act, or any successor definition
adopted by The Commission, and also qualifies as an "outside director"
for the purposes of Section 162(m) of The Code and the regulations
promulgated thereunder.
n. "Optionee" shall mean any Eligible Person who has been granted Stock
Options under The Plan.
<PAGE>
p. "Plan" or "The Plan" means the ABM Industries Incorporated Long-Term
Senior Executive Stock Option Plan, as set forth herein and as
hereinafter amended from time to time.
q. "Retirement" means retirement from active full-time employment with
the Company or any of its Affiliates at or after age sixty-four (64).
r. "Rule 16b-3" means Rule 16b-3, as promulgated by The Commission under
Section 16(b) of The Exchange Act, as amended from time to time.
s. "Stock" means common stock, par value $0.01 per share, of the Company.
t. "Stock Option" or "Option" means an option granted under Section 5 of
The Plan.
u. "Termination of Employment" means the termination of an Optionee's
employment with the Company or any of its Affiliates, excluding any
such termination where there is a simultaneous reemployment by the
Company or any of its Affiliates. An Optionee shall be deemed to have
terminated employment if he or she ceases to perform services for the
Company or any of its Affiliates on an active full-time basis,
notwithstanding the fact that such Optionee continues to receive
compensation or benefits pursuant to an employment contract or other
agreement or arrangement with the Company or any of its Affiliates. A
non-medical leave of absence shall, unless such leave of absence is
otherwise approved by The Committee, be deemed a Termination of
Employment. An Optionee employed by an Affiliate of the Company shall
also be deemed to incur a Termination of Employment if that Affiliate
ceases to be an Affiliate of the Company, as the case may be, and that
Optionee does not immediately thereafter become an employee of the
Company or any other Affiliate of the Company.
In addition, certain other terms have definitions given to them as they are
used herein.
2. ADMINISTRATION
The Plan shall be administered by the Executive Officer Compensation &
Stock Option Committee of The Board or such other committee of The Board,
composed solely of not less than two Non-Employee Directors, each of whom
shall be appointed by and serve at the pleasure of The Board. If at any
time no such committee(s) shall be in office, the functions of The
Committee specified in The Plan shall be exercised by The Board.
The Committee shall have all discretionary authority to administer the Plan
and to grant Stock Options pursuant to the terms of The Plan to senior
executives of the Company and any of its Affiliates.
<PAGE>
Among other things, The Committee shall have the discretionary authority,
subject to the terms of The Plan:
a. to select the Eligible Persons to whom Stock Options may from time to
time be granted;
b. to determine the number of shares of Stock to be covered by each Stock
Option granted hereunder; and
c. to determine the terms and conditions of any Stock Option granted
hereunder including, but not limited to, the option price (subject to
Section 5a of The Plan) and any vesting condition, restriction or
limitation based on such factors as The Committee shall determine.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing The Plan as it
shall, from time to time, deem advisable, to interpret the terms and
provisions of The Plan and any Stock Option issued under The Plan (and any
agreement relating thereto) and to otherwise supervise the administration
of The Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their
number or any officer of the Company to execute and deliver documents on
behalf of The Committee.
Any determination made by The Committee or pursuant to delegated authority
pursuant to the provisions of The Plan with respect to any Stock Option
shall be made in the sole discretion of The Committee or such delegate at
the time of the grant of the Stock Option or, unless in contravention of
any express term of The Plan, at any time thereafter. All decisions made by
The Committee or any appropriately delegated officer pursuant to the
provisions of The Plan shall be final and binding on all persons, including
the Company and Plan participants, and shall be given the maximum deference
permitted by law.
3. STOCK SUBJECT TO PLAN
Subject to adjustment as provided herein, the total number of shares of
Stock available for grant under The Plan shall be one million five hundred
thousand (1,500,000). No individual shall be eligible to receive Stock
Options to purchase more than 100,000 shares of Stock under The Plan.
Shares subject to a Stock Option under The Plan may be authorized and
unissued shares or may be treasury shares.
If any Stock Option terminates without being exercised, shares subject to
such Stock Option shall be available for further grants under The Plan.
<PAGE>
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or extraordinary
distribution with respect to the Stock or other change in corporate
structure affecting the Stock, The Committee or The Board may make such
substitution or adjustments in the number, kind and option price of shares
authorized or outstanding as Stock Options, and/or such other equitable
substitution or adjustments as its may determine to be appropriate in its
sole discretion; provided, however, that the number of shares subject to
any Stock Option shall always be a whole number.
4. ELIGIBILITY
Senior executives who are actively employed on a full-time basis by the
Company or any of its Affiliates, and who are responsible for or contribute
to the management, growth and profitability of the business of the Company
or any of Affiliates, are eligible to be granted Stock Options under The
Plan ("Eligible Persons").
5. STOCK OPTIONS
Any Stock Option granted under The Plan shall be in the form attached
hereto as Annex "A", which is incorporated herein and made a part of The
Plan, with such changes as The Committee may from time to time approve
which are consistent with The Plan. None of the Stock Options granted under
The Plan shall be "incentive stock options" within the meaning of Section
422 of The Code.
The grant of a Stock Option shall occur on the date The Committee selects a
Senior Executive of the Company or any of its Affiliates to receive any
grant of a Stock Option, determines the number of shares of Stock to be
subject to such Stock Option to be granted to such Senior Executive, and
specifies the terms and provisions of said Stock Option. Such selection
shall be evidenced in the records of the Company whether in the minutes of
the meetings of The Committee or by their consent in writing. The Company
shall notify an Optionee of any grant of a Stock Option, and a written
option agreement or agreements shall be duly executed and delivered by the
Company to the Optionee.
Stock Options granted under The Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions
as The Committee shall deem desirable:
a. OPTION PRICE. The option price per share of Stock purchasable under a
Stock Option shall be the greater of: (i) $20.00 per share, (ii) the
Fair Market Value per share of Stock on the grant date, or (iii) the
Fair Market Value per share of Stock on the date of Stockholder
approval of The Plan .
b. OPTION TERM. The term of each Stock Option shall be ten (10) years
from its date of grant, unless earlier terminated.
<PAGE>
c. EXERCISABILITY. Except as otherwise provided herein, each Stock Option
shall be exercisable during its term only if such Stock Option has
vested, and only after the first (1st) anniversary of its date of
grant.
d. VESTING. Each Stock Option shall have assigned to it by The Committee
a vesting price (the "Vesting Price") which will be used to provide
for accelerated vesting so that such Stock Option will vest
immediately if, on or before the close of business on the fourth (4th)
anniversary of its date of grant, the Fair Market Value of the Common
Stock shall have been equal to or greater than the Vesting Price with
respect to such Stock Option for ten (10) trading days in any period
of thirty (30) consecutive trading days. Any Stock Option that has not
vested on or before the close of business on the fourth (4th)
anniversary of its date of grant shall vest at the close of business
on the business day immediately preceding the eighth (8th) anniversary
of its date of grant, if such Option has not previously terminated.
e. METHOD OF EXERCISE. Subject to the provisions of this Section 5 of The
Plan, Stock Options may be exercised, in whole or in part, by giving
written notice of exercise to the Company specifying the number of
shares of Stock subject to the Stock Option to be purchased.
The option price of Stock to be purchased upon exercise of any Option
shall be paid in full:
(1) in cash (by certified or bank check or such other instrument as
the Company may accept),
(2) in the discretion of The Committee, in the form of unrestricted
Stock already owned by The Optionee for six (6) months or more
and based on the Fair Market Value of the Stock on the date the
Stock Option is exercised,
(3) in any other form approved in the discretion of The Committee, or
(4) by any combination thereof.
In the discretion of The Committee, payment for any shares subject to
a Stock Option may also be made by delivering a properly executed
exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount
of sale or loan proceeds to pay the purchase price, and, if requested,
the amount of any federal, state, local or foreign withholding taxes.
To facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
<PAGE>
No shares of Stock shall be issued until full payment therefor has
been made. The Optionee shall have all of the rights of a stockholder
of the Company holding the Stock that is subject to such Stock Option
(including, if applicable, the right to vote the share and the right
to receive dividends), only when The Optionee has given written notice
of exercise, has paid in full for such shares and, if requested, has
given the representation described in Section 9a of The Plan.
f. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall be
transferable by The Optionee other than:
(1) to a beneficiary designation satisfactory to The Committee, or
(2) by will or by the laws of descent and distribution.
All Stock Options shall be exercisable, during The Optionee's
lifetime, only by The Optionee or by the guardian or legal
representative of The Optionee, it being understood that the terms
"holder" and "Optionee" include the guardian and legal representative
of The Optionee named in the option agreement and any person to whom
an option is transferred by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. The
Committee may establish such procedures as it deems appropriate for an
Optionee to designate a beneficiary to whom any amounts payable in the
event of the Optionee's death are to be paid or by whom any rights of
the Optionee, after the Optionee's death, may be exercised.
g. TERMINATION BY DEATH, DISABILITY, RETIREMENT OR BY THE COMPANY WITHOUT
CAUSE. If The Optionee's employment terminates by reason of death,
Disability or Retirement, or if such employment is terminated by the
Company without Cause, in each case prior to the vesting of a Stock
Option held by The Optionee, the following provisions shall apply:
(1) if termination occurs by death or Disability, or by the Company
without Cause, such Stock Options shall be exercisable only
within ninety (90) days of such termination, and only if such
Stock Options are then vested;
(2) if termination occurs by Retirement or other "voluntary quit,"
such Stock Options shall terminate immediately; and
h. TERMINATION BY THE COMPANY FOR CAUSE. If The Optionee's employment is
terminated by the Company for Cause prior to the vesting of a Stock
Option, such Stock Options shall terminate immediately.
<PAGE>
i. TERMINATION AFTER VESTING. If The Optionee's employment is terminated
for any reason after a Stock Option has vested, such Stock Options
shall be exercisable only within ninety (90) days of such termination,
j. CHANGE IN CONTROL CASH OUT. Notwithstanding any other provision of The
Plan, upon the occurrence of a Change of Control all outstanding Stock
Options shall immediately vest and become fully exercisable, and
during the ninety (90) day period from and after such Change in
Control (the "Exercise Period"), The Optionee shall have the right, in
lieu of the payment of the exercise price for the shares of Stock
being purchased under the Stock Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or
part of the Stock Option to the Company and to receive cash, within
ninety (90) days of such notice, in an amount equal to the amount by
which the Change in Control Price per share of Stock on the date of
such election shall exceed the exercise price per share of Stock under
the Stock Option (the "Spread"), multiplied by the number of shares of
Stock granted under the Stock Option as to which the right granted
under this Section 5j of The Plan shall have been exercised.
Notwithstanding the foregoing, if any right granted pursuant to this
Section 5j of The Plan would make a Change in Control transaction
ineligible for pooling of interests accounting under APB No. 16 than
but for this Section 5j of The Plan would otherwise be eligible for
such accounting treatment, The Committee shall have the authority to
replace the cash payable pursuant to this Section 5j of The Plan with
Stock having a Fair Market Value equal to the cash that would
otherwise be payable hereunder. For purposes of this Section 5j only,
the date of grant of any Stock Option approved by The Committee on
December 17, 1996 shall be deemed to be the date on which The Plan is
approved by the Company's stockholders.
k. INITIAL GRANTS. On December 17, 1996, The Committee granted the
following Stock Options to the senior executives set forth below, in
the share amounts and at the Vesting Prices and exercise prices
indicated, subject to approval by the Stockholders of the Company on
March 18, 1997:
Optionees # of Options Exercise Price* Vesting
Prices
--------------------------- -------------- --------------- --------
--------------------------- -------------- --------------- --------
William W. Steele 25,000 $20.00 $25.00
PRESIDENT & CEO OF THE 25,000 20.00 30.00
COMPANY 25,000 20.00 35.00
25,000 20.00 40.00
Martinn H. Mandles 20,000 $20.00 $25.00
EXECUTIVE VICE PRESIDENT OF 20,000 20.00 30.00
THE COMPANY 20,000 20.00 35.00
20,000 20.00 40.00
<PAGE>
Jess E. Benton, III 15,000 $20.00 $25.00
SENIOR VICE PRESIDENT OF THE 15,000 20.00 30.00
COMPANY 15,000 20.00 35.00
15,000 20.00 40.00
John F. Egan 15,000 $ 20.00 $25.00
VICE PRESIDENT OF THE 15,000 20.00 30.00
COMPANY & PRESIDENT OF THE 15,000 20.00 35.00
JANITORIAL SERVICES DIVISION 15,000 20.00 40.00
One (1) other Senior Executive 15,000 $ 20.00 $25.00
of the Company 15,000 20.00 30.00
15,000 20.00 35.00
15,000 20.00 40.00
Sixteen (16) other Senior 10,000 $20.00 $25.00
Executives of the Company 10,000 20.00 30.00
and/or its Affiliates (each) 10,000 20.00 35.00
10,000 20.00 40.00
All twenty-one (21) of these 250,000 $20.00 $25.00
Senior Executives of the 250,000 20.00 30.00
Company and/or its Affiliates 250,000 20.00 35.00
as a Group 250,000 20.00 40.00
* for these and any other Options granted under The Plan, the Exercise
Price shall be the greater of: (i) $20.00 per share, (ii) the Fair
Market Value per share of Stock on the grant date of any such Options,
or (iii) the Fair Market Value per share of Stock on the date of
Stockholder approval of The Plan.
6. CHANGE IN CONTROL PROVISIONS
a. IMPACT OF EVENT. Notwithstanding any other provision of The Plan to
the contrary, in the event of a Change in Control, any Stock Options
outstanding as of the date such Change in Control is determined to
have occurred, and not then vested and exercisable, shall become
vested and exercisable to the full extent of the original grant,
provided that such accelerated vesting shall occur only if The
Optionee is an active full-time employee of the Company or any of its
Affiliates as of such date.
<PAGE>
b. DEFINITION OF CHANGE IN CONTROL. For purposes of The Plan, a "Change
in Control" shall mean the happening of any of the following events:
(1) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of The Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under The Exchange Act) of thirty percent (30%)
or more of either:
(a) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"), or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of Directors (the
"Outstanding Company Voting Securities"),
(c) excluding, however, the following acquisitions of
Outstanding Company Common Stock and Outstanding
Company Voting Securities:
(i) any acquisition directly from the Company (other than
an acquisition pursuant to the exercise of a
conversion privilege),
(ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporate controlled by the Company or
(iv) any acquisition by any Person pursuant to a
reorganization, merger or consolidation if, following
such reorganization, merger or consolidation, the
conditions described in Section 6b(3) of The Plan are
satisfied; or
(2) Individuals who, as of the effective date of The Plan, constitute
The Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of The Board; provided, however,
that any individual who becomes a member of The Board subsequent
to such effective date, whose election, or nomination for
election by the Company's shareholders, was approved by:
(a) a vote of at least a majority of Directors then comprising
the Incumbent Board, or
<PAGE>
(b) a vote of at least a majority of the Directors then
constituting the Executive Committee of The Board at a time
when such Committee comprised at least five members and all
members of such Committee were either members of the
Incumbent Board of considered as being members of the
Incumbent Board, pursuant to Section 6b(2)(a), shall be
considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under The Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than The Board shall not be so
considered as a member of the incumbent Board; or
(3) Approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination"); excluding, however, such a Business Combination
pursuant to which:
(a) all or substantially all of the individuals and entities who
are the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
own, directly or indirectly, more than sixty percent (60%)
of, respectively, the outstanding shares of common stock,
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination,
of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be,
(b) no Person (other than the Company, any employee benefit plan
(or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or such
corporation resulting from such Business Combination and any
Person beneficially owning, immediately prior to such
Business Combination, directly or indirectly, twenty percent
(20%) or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be)
will beneficially own, directly or indirectly, twenty (20%)
or more of, respectively, the outstanding shares of common
stock of the corporation resulting from such Business
Combination or the
<PAGE>
combined voting power of the outstanding voting securities
of such corporation entitled to vote generally in the
election of directors, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of The
Board, providing for such Business Combination; or
(4) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
c. CHANGE IN CONTROL PRICE. For purposes of The Plan, "Change in Control
Price" means the higher of:
(1) the highest reported sales price, regular way, of a share of
Stock in any transaction reported on the New York Stock Exchange
Composite Tape or other national securities exchange on which
such shares are listed or on NASDAQ, as applicable, during the
ninety (90) day period prior to and including the date of a
Change in Control, or
(2) if the Change in Control is the result of a tender or exchange
offer or a Business Combination, the highest price per share of
Stock paid in such tender or exchange offer or Business
Combination; provided, however, that in the case of a Stock
Option which:
(a) is held by an Optionee who is an officer of the Company and
is subject to Section 16(b) of The Exchange Act, and
(b) was granted within two hundred and forty (240) days of the
Change in Control,
then the Change in Control Price for such Stock Option shall be
the Fair Market Value of the Stock on the date such Stock Option
is exercised or canceled. To the extent that the consideration
paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of
such securities or other non-cash consideration shall be
determined in the sole discretion of The Board.
7. TERM, AMENDMENT AND TERMINATION
The Plan will terminate on December 17, 2006. Stock Options outstanding as
of December 17, 2006 shall not be affected or impaired by the termination
of The Plan.
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The Committee shall have authority to amend The Plan without the approval
of the Company's stockholders to take into account changes in law and tax
and accounting rules, including Rule 16b-3 and Section 162(m) of The Code;
provided that no amendment shall be made without the Optionee's consent
which would impair the rights of an Optionee under a Stock Option
theretofore granted.
8. UNFUNDED STATUS OF PLAN
It is presently intended that The Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created
under The Plan to deliver Stock or make payments; provided, however, that,
unless The Committee otherwise determines, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of The Plan.
9. GENERAL PROVISIONS
a. The Committee may require each person purchasing shares pursuant to a
Stock Option to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any
legend which The Committee deems appropriate to reflect any
restrictions on transfer.
Notwithstanding any other provision of The Plan or agreements made
pursuant thereto, the Company shall not be required to issue or
deliver any certificate or certificates for shares of Stock under The
Plan prior to fulfillment of all of the following conditions:
(1) the listing or approval for listing
(2) any registration or other qualification
(3) the obtaining of any other consent, approval, or permit from any
state or federal governmental agency which The Committee shall,
in its absolute discretion after receiving the advice of counsel,
determine to be necessary or advisable.
b. Nothing contained in The Plan shall prevent the Company or any of its
Affiliates from adopting other or additional compensation arrangements
for any Optionee.
c. The adoption of The Plan shall not confer upon any Optionee any right
to continued employment, nor shall it interfere in any way with the
right of the Company or any of its Affiliates to terminate the
employment of any Optionee with or without cause at any time
whatsoever absent a written employment contract to the contrary.
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d. No later than the date as of which an amount first becomes includable
in the gross income of the Optionee for federal income tax purposes
with respect to any Stock Option under The Plan, and prior to the
delivery of any shares of Stock to any Optionee, the Optionee shall
pay to the Company, or make arrangements satisfactory to the Company
regarding the payment of, any federal, state, local or foreign taxes
of any kind required by law to be withheld by the Company with respect
to such amount. In the discretion of The Committee, withholding
obligations may be settled with Stock in an amount having a Fair
Market Value not exceeding the minimum withholding tax payable by the
Optionee with respect to the income recognized, including Stock that
is subject to the Stock Option that gives rise to the withholding
requirement. The obligations of the Company under The Plan shall be
conditional on such payment or arrangements, and the Company and any
of its Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
Optionee. The Committee shall establish such procedures as it deems
appropriate, including the making of irrevocable elections, for the
settlement of withholding obligations with Stock.
e. In the case of a grant of a Stock Option to any employee of a Company
Affiliate, the Company, may, if The Committee so directs, issue or
transfer the shares of Stock covered by the Stock Option to the
Affiliate, for such lawful consideration as The Committee may specify,
upon the condition or understanding that the Affiliate will transfer
the shares of Stock to that Optionee in accordance with the terms of
the Stock Option specified by The Committee pursuant to the provisions
of The Plan.
f. The Plan and all Stock Options made and actions taken thereunder shall
be governed by and construed in accordance with the laws of the State
of California, without reference to principles of conflict of law.
10. EFFECTIVE DATE OF PLAN
Subject to approval by the Stockholders of the Company on March 18,
1997, The Plan shall be effective on December 17, 1996.