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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from _________ to _________
Commission File Number 1-8929
ABM INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
50 FREMONT STREET, 26TH FLOOR, SAN FRANCISCO, CALIFORNIA 94105
(Address and zip code of principal executive offices)
TELEPHONE: (415) 597-4500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on Which
Title of Each Class Registered
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE AND
PACIFIC STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE AND
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of December 31, 1996, nonaffiliates of the registrant beneficially owned
shares of the registrant's common stock with an aggregate market value of
$283,507,413.
As of December 31, 1996, there were 19,924,767 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement to be used by the Company in connection with its 1997 Annual
Meeting of Stockholders is incorporated by reference into Part III of this Form
10-K.
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PART I
ITEM 1. BUSINESS.
ABM Industries Incorporated ("ABM") is the largest U.S.-based facility
services contractor listed on the New York Stock Exchange. With annual revenues
exceeding $1 billion and more than 47,000 employees, ABM and its subsidiaries
(the "Company") provide air conditioning, elevator, engineering, janitorial,
lighting, parking and security services to thousands of commercial, industrial
and institutional customers who outsource these services in hundreds of cities
across North America.
ABM was reincorporated in Delaware on March 19, 1985, as the successor to a
business founded in California in 1909. The Corporate Headquarters of the
Company is located at 50 Fremont Street, 26th Floor, San Francisco, California
94105, and its telephone number is 415/597-4500.
BUSINESS SEGMENT INFORMATION
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.
<TABLE>
<CAPTION>
JANITORIAL PUBLIC SERVICE TECHNICAL
DIVISIONS DIVISIONS DIVISIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
American Building American Commercial ABM
Maintenance Security Services Engineering
Easterday Janitorial Supply Ampco System Parking Services
Amtech
Elevator
Services
Amtech Lighting
Services
CommAir
Mechanical
Services
</TABLE>
Additional information relating to the Company's three industry segments
appears in Note 15 of Item 8, Financial Statements and Supplementary Data of
this Form 10-K. The business activities of the Company's three industry segments
and eight operating divisions, as they existed at October 31, 1996, are more
fully described below.
JANITORIAL DIVISIONS
The Janitorial Divisions segment provides janitorial cleaning services as
well as janitorial supplies and equipment to its customers. Operating from 78
offices throughout the United States and Canada, this segment accounted for
approximately 54%, 53% and 56% of the Company's revenues in the fiscal years
ended October 31, 1994, 1995 and 1996, respectively.
/ / AMERICAN BUILDING MAINTENANCE (also known as ABM Janitorial
Services) provides a wide range of basic janitorial services for a variety
of structures and organizations, including office buildings, industrial
plants, banks, department stores, theaters, warehouses, educational and
health institutions and airport terminals. Services provided include floor
cleaning and finishing, wall and window washing, furniture polishing, rug
cleaning, dusting, and other building cleaning services. This Division
maintains 72 offices in 32 states, the District of Columbia and two Canadian
provinces and operates under thousands of individually negotiated building
maintenance contracts, the majority of which are obtained by competitive
bidding. Generally, profit margins on maintenance contracts tend to be
inversely proportional to the size of the contract. Although many of the
Division's maintenance contracts are fixed price agreements, others contain
clauses under which the customer agrees to reimburse the Division for the
full amount of wages, payroll taxes, insurance premiums and other expenses
plus a profit percentage. The majority of the Division's contracts are for
one-year periods, contain automatic renewal clauses and are subject to
termination by either party upon 30 to 90 days written notice.
/ / EASTERDAY JANITORIAL SUPPLY markets janitorial supplies and
equipment through six sales offices located in San Francisco, Los Angeles
and Sacramento, California; Portland, Oregon; Reno, Nevada; and Houston,
Texas. Easterday has also approved 31 sub-distributors to serve American
Building Maintenance in 26 other states and the District of Columbia. Aside
from sales to American Building Maintenance, which, in 1996, accounted for
approximately 32% of Easterday Janitorial Supply's total revenues, the
principal customers for this division are industrial plants, schools,
commercial buildings, industrial organizations, transportation terminals,
theaters, hotels, retail stores, restaurants, military establishments and
janitorial service companies. Among the products sold are paper products,
disinfectants, floor cleaners, polishes, glass cleaners, waxes and cleaning
equipment. The products sold include a number of nationally advertised
brands and, in large part, are manufactured by others. This Division blends
certain cleaning agents and waxes which it sells
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under the Easterday name, but these operations are not significant in
relation to Easterday Janitorial Supply as a whole.
PUBLIC SERVICE DIVISIONS
At October 31, 1996, operations of the Company's Public Service Divisions
segment provided parking facility management services and commercial security
and investigative services to their customers.
The Public Service Divisions operated from 42 offices which were located
throughout the United States. For the fiscal years ended October 31, 1994, 1995
and 1996, this segment accounted for approximately 20%, 21% and 21%,
respectively, of the Company's revenues.
The two Public Service Divisions are described below:
/ / AMERICAN COMMERCIAL SECURITY SERVICES (also known as "ACSS" and
"ABM Security Services") provides security guards and special investigative
and security consulting services to a wide range of businesses in the major
metropolitan areas of San Francisco, San Diego and Los Angeles, California;
Houston, Dallas/Fort Worth, Austin and San Antonio, Texas; Chicago,
Illinois; Phoenix, Arizona; Seattle, Washington; Portland, Oregon; New
Orleans, Louisiana; Minneapolis, Minnesota; and Salt Lake City, Utah. Much
like American Building Maintenance, the majority of this Division's
contracts are for one-year periods, contain automatic renewal clauses and
are subject to termination by either party upon 30 to 90 days written
notice.
/ / AMPCO SYSTEM PARKING operates approximately 1,400 parking lots and
garages which are either leased from or managed for third parties. The lease
terms generally range from 5 to 10 years and usually contain provisions for
renewal options. Leases which expire may continue on a month-to-month basis
or are replaced by similar leases. Many leases contain provisions for
contingent rentals based on revenues. Ampco System Parking currently
operates facilities in 24 states, including seven of the 20 busiest
international airports in the U.S.: Denver, Honolulu, Los Angeles, Newark,
Orlando, Phoenix and San Francisco.
TECHNICAL DIVISIONS
The Technical Divisions segment provides its customers with a wide range of
elevator, engineering, HVAC (heating, ventilation and air conditioning) and
lighting services through its four divisions. The Company believes that the
offering of such a wide range of services by an affiliated group provides its
customers with an attractive alternative to obtaining the services of a larger
number of unrelated individual contractors and/or subcontractors. A number of
the Divisions' service contracts are for one to three years and are generally
renewed after expiration. This segment's primary market consists of retail and
commercial businesses with multiple locations scattered over wide geographic
areas. Examples of such customers include high-rise office buildings, bank and
savings and loan branch systems, shopping centers, restaurant chains, service
stations, supermarkets, and convenience, discount and drug store chains.
The Technical Divisions operate from 48 offices located in Arizona,
California, Colorado, Florida, Georgia, Illinois, Louisiana, Maryland, Michigan,
Minnesota, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas,
Washington, D.C. , and Wisconsin. For the fiscal years ended October 31, 1994,
1995 and 1996, this segment accounted for approximately 26%, 26% and 23%,
respectively, of the Company's revenues.
Operations of the four Technical Divisions during fiscal year 1996 are
described below:
/ / ABM ENGINEERING SERVICES (also known as Amtech Engineering
Services) provides building owners and managers with on-site operating
engineers to operate, maintain and repair electrical, mechanical, and
plumbing systems within a facility. This service is primarily for high-rise
office buildings, but customers also include schools, warehouses, factories,
shopping malls and universities. ABM Engineering Services maintains five
offices, two of which are in California and one each in Chicago, Illinois;
Philadelphia, Pennsylvania; and Phoenix, Arizona.
/ / AMTECH ELEVATOR SERVICES installs, maintains and repairs elevators
and escalators in major metropolitan areas of California; Dallas and
Houston, Texas; Cincinnati, Ohio; Detroit, Michigan; Upper Marlboro,
Maryland; Las Vegas, Nevada; Pennsauken, New Jersey; Atlanta, Georgia;
Philadelphia, Pennsylvania; Phoenix, Arizona; Denver, Colorado; Chicago,
Illinois; and Washington, D.C. Amtech Elevator Services maintains seventeen
offices and several parts warehouses, and operates a fleet of radio-equipped
service vehicles.
/ / AMTECH LIGHTING SERVICES provides relamping, fixture cleaning and
periodic maintenance service to its customers. Amtech Lighting Services also
repairs, services, designs and
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installs outdoor signage. This division maintains seventeen offices, six of
which are located in California; and one office in each of Austin, Corpus
Christi, Dallas, Houston and San Antonio, Texas; Phoenix, Arizona;
Albuquerque, New Mexico; New Orleans, Louisiana; Atlanta, Georgia; Tampa,
Florida; and Oklahoma City, Oklahoma. Effective November 1, 1996, this
division will also have offices in New York, New York, and Belleville, New
Jersey.
/ / COMMAIR MECHANICAL SERVICES installs, maintains and repairs
heating, ventilation and air conditioning equipment, and provides energy
management services for commercial, industrial and institutional facilities.
CommAir Mechanical Services maintains ten offices, nine of which are located
in California, and one in Phoenix, Arizona.
TRADEMARKS
The Company believes that it owns or is licensed to use all corporate names,
trade names, trademarks, service marks, copyrights, patents and trade secrets
which are material to the Company's operations.
COMPETITION
The Company believes that each aspect of its business is highly competitive,
and that such competition is based primarily on price and quality of service.
The Company's competitors include a large number of regional and local companies
located in major cities throughout the United States and Canada. While the
majority of the Company's competitors in the janitorial and building maintenance
business operate in a limited geographic area, the operating divisions of a few
large, diversified companies compete with the Company on a national basis.
MARKETING AND SALES
The Company's marketing efforts are conducted by its corporate, division,
regional and branch offices. Sales and operations personnel in each of these
offices participate directly in selling and servicing customers. The broad
geographic scope of these offices enables the Company to provide a full range of
facility services through inter-service sales referrals, multi-service "bundled"
sales and national account sales.
The Company has a broad customer base including airports, apartment
complexes, city centers, colleges and universities, financial institutions,
industrial plants, office buildings, retail stores, shopping centers and theme
parks. No customer accounted for more than 5% of its revenues during the fiscal
year ended October 31, 1996.
EMPLOYEES
The Company employs approximately 47,000 persons, of whom the vast majority
perform air conditioning, elevator, engineering, janitorial, lighting, parking
and security services. Approximately 19,800 of these employees are covered under
collective bargaining agreements. There are about 3,200 employees with
executive, managerial, administrative, professional, sales, marketing, clerical
and other office assignments.
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PRINCIPAL OFFICERS OF THE COMPANY
The principal officers of the Company as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Sydney J. Rosenberg 82 Chairman of the Board; Chief Executive Officer from November 1991
to November 1994
William W. Steele 60 Chief Executive Officer since November 1994; President since
November 1991
Martinn H. Mandles 56 Executive Vice President
J. E. Benton, III 56 Senior Vice President since July 1994; Vice President from
November 1977 to July 1994
Sherrill F. Sipes, Jr. 61 Senior Vice President since July 1994; Vice President from May
1968 to July 1994
William C. Banner 62 Vice President of the Company, and President of the Security
Services Division
Donna M. Dell 48 Vice President and Director of Human Resources since July 1994;
Vice President and Legal Counsel, Wells Fargo Bank, from February
1990 to June 1994
John F. Egan 60 Vice President of the Company, and President of the Janitorial
Services Division
David H. Hebble 61 Vice President and Chief Financial Officer
Harry H. Kahn 53 Vice President, General Counsel and Secretary
Douglas B. Bowlus 52 Treasurer
Hussain A. Khan 60 Controller and Chief Accounting Officer
</TABLE>
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ITEM 2. PROPERTIES.
The Company has sales, operations, warehouse and administrative facilities
in over 200 locations throughout the United States, and Canada. Fourteen of
these facilities are owned by the Company and the remainder are leased. At
October 31, 1996, the real estate owned by the Company had an aggregate net book
value of $3,461,000 and was located in: Phoenix, Arizona; San Francisco and
Fresno, California; Jacksonville and Tampa, Florida; Elko, Nevada; Portland,
Oregon; Houston and San Antonio, Texas; Kennewick, Seattle, Spokane and Tacoma,
Washington; and Winnipeg, Manitoba, Canada.
Rental payments under long and short-term lease agreements amounted to
$91,668,000 for the fiscal year ended October 31, 1996. Of this amount,
$65,973,000 in rental expense was attributable to Ampco System Parking Division
for the public parking lots and garages that it leases and operates. The
remaining rent expense was for equipment, vehicles, office and warehouse space.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MARKET INFORMATION AND DIVIDENDS
The Company's common stock is listed on the New York Stock Exchange and
Pacific Stock Exchange. The Company's credit agreement places certain
limitations on dividend payments based on net income (see note 5 to the
consolidated financial statements in item 8). The following table sets forth the
high and low prices of the Company's common stock and quarterly cash dividends
on common shares for the periods indicated:
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------------------------------
FIRST SECOND THIRD FOURTH YEAR
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1995
Price range of common stock:
High $12 1/8 $12 1/8 $12 1/2 $13 5/8
Low $10 1/8 $10 3/4 $11 $12 5/8
Dividends per share $0.075 $0.075 $0.075 $0.075 $0.30
1996
Price range of common stock:
High $14 1/4 $17 5/8 $20 1/4 $19 3/8
Low $13 1/8 $13 1/2 $17 1/8 $15 1/2
Dividends per share $0.0875 $0.0875 $0.0875 $0.0875 $0.35
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All share and per share amounts have been restated to retroactively reflect the
two-for-one common stock split on July 15, 1996.
At December 31, 1996, there were approximately 4,900 holders of the Company's
common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below is derived from the
Company's consolidated financial statements for each of the years in the
five-year period ended October 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts and ratios) 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues and other income $ 760,097 $ 773,312 $ 884,633 $ 965,381 $ 1,086,925
- ------------------------------------------------------------------------------------------------------------
Expenses
Operating expenses and cost of goods sold 643,346 658,503 760,056 830,749 940,296
Selling and administrative 94,273 92,403 96,059 99,521 104,893
Interest 2,061 2,164 3,459 3,699 3,631
- ------------------------------------------------------------------------------------------------------------
739,680 753,070 859,574 933,969 1,048,820
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 20,417 20,242 25,059 31,412 38,105
Income taxes 8,425 7,596 9,890 13,193 16,385
- ------------------------------------------------------------------------------------------------------------
Net income $ 11,992 $ 12,646 $ 15,169 $ 18,219 $ 21,720
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.71 $ 0.73 $ 0.82 $ 0.92 $ 1.05
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Common and common equivalent shares 16,795 17,291 17,816 19,179 20,241
FINANCIAL STATISTICS
Dividends per common share $ 0.245 $ 0.25 $ 0.258 $ 0.30 $ 0.35
Stockholders' equity per common share $ 5.77 $ 6.28 $ 6.87 $ 7.57 $ 8.43
Working capital $ 76,484 $ 76,613 $ 90,165 $ 95,627 $ 119,957
Current ratio 2.00 1.85 1.91 1.84 2.05
Long-term debt $ 15,435 $ 20,937 $ 25,254 $ 22,575 $ 33,664
Redeemable cumulative preferred stock $ -- $ 6,400 $ 6,400 $ 6,400 $ 6,400
Stockholders' equity $ 98,209 $ 110,188 $ 124,331 $ 141,786 $ 164,293
Total assets $ 223,724 $ 268,140 $ 299,470 $ 334,973 $ 379,770
Property, plant and equipment -- net $ 15,009 $ 17,043 $ 19,819 $ 22,647 $ 22,570
Capital expenditures $ 5,225 $ 6,187 $ 8,539 $ 10,225 $ 10,751
Depreciation and amortization $ 6,634 $ 7,158 $ 9,300 $ 11,527 $ 13,651
Accounts receivable -- net $ 120,885 $ 127,908 $ 140,788 $ 158,075 $ 183,716
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All share and per share amounts have been restated to retroactively reflect
two-for-one common stock splits in 1992 and 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto. All information in
the discussion and references to the years are based on the Company's fiscal
year which ends on October 31.
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures, 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, 1998, which at the Company's option, may be
extended one year. At the Company's option, the credit facility provides
interest at the prime rate or IBOR+.45%. As of October 31, 1996, the total
amount outstanding was approximately $99 million, which was comprised of loans
in the amount of $28 million and standby letters of credit of $71 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 provides a seven-year term loan of $5
million at a fixed interest rate of 6.78 %. Annual payments of principal and
interest in varying amounts are due February 15, 1997 through February 15, 2003.
The Company's effective interest rate for all borrowings for the year ended
October 31, 1996 was 6.9%.
Operating activities generated cash flows in 1994, 1995 and 1996 of $21.9
million, $13.8 million and $16.7 million respectively. Cost of acquisitions
during the fiscal years ended October 31, 1994, 1995 and 1996 including payments
pursuant to contractual arrangements involved in prior acquisitions, were
approximately $7.1 million, $12.5 million and $13.0 million, respectively.
Capital expenditures during fiscal years 1994, 1995, and 1996 were $8.5 million,
$10.2 million, and $10.8 million, respectively. Cash dividends paid to
stockholders of common and redeemable preferred stock were approximately $5.1
million in 1994, $6.1 million in 1995 and $7.2 million in 1996. At October 31,
1996, working capital was $120.0 million as compared to $95.6 million at October
31, 1995.
ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It also applies to
transactions in which a company issues equity to acquire goods or services from
non-employees. The statement defines a fair value based method of accounting for
an employee stock option plan and encourages all entities to adopt this method.
The statement also, however, allows an entity the option to continue to measure
compensation cost for those plans using the intrinsic value based method in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25), but then requires the entity to adopt the positions of SFAS 123
through pro forma disclosures.
Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period. Fair value is determined using an option pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life
of the option, the volatility of the underlying stock, expected dividends, and
the risk-free interest rate over the expected life of the option. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date over the amount the employee
must pay to acquire the stock. As ABM's stock option plans have historically
issued options at the market value of the stock on the date of the grant, no
compensation cost has been recognized in accordance with APB 25. The Company
will continue to account for its stock option issuances under the provisions of
APB 25 and will make the required pro forma disclosures as prescribed by SFAS
123. The Company plans to implement this statement as required in its fiscal
year beginning November 1, 1996.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years have had no material
impact on the financial statements of the Company. The Company attempts to
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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.
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
The operating results of businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition and are fully discussed on Note 12 to the Consolidated Financial
Statements. Acquisitions made in the three fiscal years ending October 31, 1996
contributed approximately $52 million to fiscal 1996 revenues.
Effective November 1, 1996, the Company, through one of its subsidiaries,
acquired the operations and assets of Sica Electrical and Maintenance Corp., of
Ozone Park, New York. Sica Electrical and Maintenance Corp. is an electrical and
a 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 income 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 will include the 696,646 shares issued or issuable. The Company
estimates that in fiscal 1997 this acquisition will contribute approximately $15
million in revenues.
RESULTS OF OPERATIONS
COMPARISON OF 1996 TO 1995
The Company reported record revenues and earnings for 1996. Revenues and
other income (hereinafter called "revenues") were $1.087 billion in 1996, up
$122 million or 13%, from $965 million reported in 1995. The 13% increase in
revenues in 1996 over 1995 was attributable to volume and price increases as
well as revenues generated from acquisitions. Acquisitions made during 1996
accounted for approximately $15 million, or approximately 12% of the total
revenue increase of $122 million for 1996. Gross profit (revenues minus
operating expenses and cost of goods sold) increased $12 million to $147 million
from $135 million a year ago. The ratio of gross profit to revenues declined
slightly to 13.5% in 1996 from 13.9% in 1995. The increase in gross profit
amount was primarily due to increases in revenues and was partially offset by
increases in labor and labor related costs. Even with increased revenues, the
Company's insurance cost did not substantially increase in 1996. As discussed in
previous years, the Company's continued emphasis on safety training and
education programs, along with aggressively settling claims, has helped
management to control the insurance expenses.
Selling, general and administrative expense increased $5.4 million from
$99.5 million in 1995 to $104.9 million in 1996 but decreased slightly as a
percentage of revenues from 10.3% to 9.7% in 1996. The dollar amount of increase
in selling, general and administrative expense is due to increases in marketing
expenses as well as legal, accounting, and goodwill amortization expenses
associated with acquisitions. The percentage of selling, general and
administrative expense in relation to revenues, decreased for 1996 as a result
of management's successful cost control measures, coupled with economies of
scale.
In 1996, interest expense was $3,631,000 as compared to $3,699,000 in 1995,
a slight decrease of $68,000. Although the average debt was higher in 1996 than
1995, the effective interest rate was lower
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during the current year: 6.9% in 1996 as compared to 7.8% in 1995. Consequently,
the lower effective rate in 1996 helped to offset the interest expense caused by
higher average borrowing. Interest expense was also higher in 1995 because the
Company paid interest on fully accrued state and federal income taxes.
The pretax income for 1996 was $38.1 million, an increase of 21% over the
prior year. The growth in pre-tax income outpaced the revenue growth for 1996
primarily due to continued implementation of cost controls, contribution from
acquisitions made over the past few years, and stable insurance expenses.
The effective income tax rate was 43% in 1996 and 42% in 1995. The higher
rate in 1996 reflects the loss of certain tax credits and higher non-deductible
expenses for tax purposes.
Net income increased to $21.7 million in 1996, or 19%, from $18.2 million in
1995. Earnings per share for the current year increased to $1.05 from $0.92 in
1995 which represents a 14% increase. The average number of shares used for the
calculation of earnings per share increased from approximately 19.2 million to
20.2 million. The increase in common and common equivalent shares resulted
mainly from the exercise of stock options, higher common stock equivalents due
to a higher average share price, and purchases made by employees under the
Company's Employee Stock Purchase Plan. Earnings per share calculations also
includes the effect of a preferred stock dividend deduction of $512,000 for 1996
and 1995.
The results of operations from the Company's three industry segments and its
operating divisions for 1996 as compared to 1995 are more fully described below:
Revenues for the Janitorial Divisions segment in 1996 were $607 million, an
increase of $96 million or 19% over 1995, while its operating profits increased
20% over 1995. The Janitorial Divisions segment, which includes American
Building Maintenance and Easterday Janitorial Supply, accounted for
approximately 56% of the Company's consolidated revenues for 1996. Revenues of
American Building Maintenance increased by 19% in 1996 as compared to 1995
primarily as a result of significant increases in its Northeast, Midwest, and
Northern California Regions; moderate increases in Southeast, Gulf Central,
South Central, Northwest, Ohio Valley, and Southwest Regions; offset by slight
decreases in its Canadian and Mid-Atlantic Regions. Revenues also increased
approximately $13 million from acquisitions made during the fiscal year 1996.
This Division's operating profits increased by 20% when compared to 1995. The
increase in operating profits (revenues minus total expenses) is principally due
to the increased revenues, cost controls of its selling and administrative
expenses, contributions from recent acquisitions, partially offset by increased
direct labor and labor related expenses. Easterday Janitorial Supply Division's
revenues for 1996 increased by approximately 14% as compared to 1995 generally
due to increases in its customer base and additional sales generated by outside
brokers. Operating profits increased 18% as a result of increased sales volume
and cost containment efforts, partially offset by lower margins from brokerage
sales.
Revenues in 1996 from the Public Service Divisions segment, which includes
the American Commercial Security Services and Ampco System Parking Divisions,
were $226 million, an increase of 10% over 1995. Public Service Divisions
accounted for approximately 21% of the Company's consolidated revenues in 1996.
The operating profits of this segment were up 14%. American Commercial Security
Services reported an increase in revenues of 20% in 1996 as compared to 1995
primarily due to obtaining new customers, particularly in the Southwest and
South Central Regions, as well as from an acquisition in Minneapolis. The
Division's operating profits increased by 16% over 1995. Operating profit
increased at a lower rate than sales due primarily to the larger contracts
obtained in 1996 which were bid at smaller margins in order to remain
competitive. Ampco System Parking Division's revenues increased by approximately
4% in 1996 when compared to 1995 and its operating profits increased by 13%. The
primary factors accounting for the growth in revenues were increased business at
its airport operations, an increase in management fee income, and partially
offset by lower monthly parking revenues in the downtown Los Angeles market due
to higher vacancy rates in office buildings. An impressive improvement of 13% in
operating profits is largely due to a higher gross margin contribution from the
Division's airport operations as well as an increase in management fee income.
The Company's Technical Divisions segment includes ABM Engineering Services,
Amtech Elevator Services, Amtech Lighting Services, and CommAir Mechanical
Services. The Technical Divisions segment through its four divisions reported
revenues of $253 million, an increase of approximately 2% over last year. These
revenues represent approximately 23% of the Company's consolidated revenues for
1996. Operating profits of the Technical Divisions increased approximately 5% in
1996 over 1995. ABM Engineering Services Division reported increased revenues of
12% and a 28% increase in operating profits for 1996 as compared to 1995.
Revenue increases were posted by all
10
<PAGE>
its regions in 1996 mainly due to geographic expansion and penetration into new
markets. The increase in operating profits continues to result from increased
volume, reductions in payroll related costs including insurance expense, and
containment of selling, general and administrative expenses. For 1996, Amtech
Elevator Services Division reported a 5% decrease in revenues when compared to
the prior year. The decrease in revenues is primarily due to management's
decision to gradually phase out of the construction business, the sale of the
Company's Mexican subsidiary on May 31, 1996, and offset partially by a strong
growth in maintenance service base. This Division's operating profits were
negatively impacted by operating losses of its Mexican business prior to
disposal, increased marketing expenses to expand its maintenance service base,
and start-up costs incurred in opening three new branches in 1996. Amtech
Lighting Services Division's revenues for 1996 decreased by 2% while its
operating profits decreased by 5%. Revenues were down as a result of lower
project oriented types of sales. The operating profit was negatively impacted
from lower revenues in 1996 as well as competitive market conditions. CommAir
Mechanical Services Division's revenues and operating profits in 1996 increased
by 5% and 2%, respectively, over the prior year. The revenue increase is
attributable to energy management category of sales, service contracts, and
partially offset by decrease in installation contracts. A relatively smaller
percentage increase in operating profits for the current year is a result of
lower margins from larger energy management projects as well as a slight
increase in operating expenses.
COMPARISON OF 1995 TO 1994
The Company reported record revenues and earnings for 1995. Revenues and
other income were $965 million in 1995, up $80 million or 9%, from the prior
year revenues of $885 million. The 9% increase in revenues in 1995 over 1994 was
attributable to volume and price increases as well as revenues generated from
acquisitions. All eight divisions of the Company reported revenue growth in 1995
except the Amtech Elevator Services Division, and all divisions posted increased
operating profits for 1995. Net income for 1995 was $18.2 million, a 20%
increase, compared to $15.2 million in 1994. As a percentage of revenues,
operating expenses and cost of goods sold were 85.9% in 1994 and 86.1% in 1995.
Consequently, as a percentage of revenues, gross profit was 13.9% in 1995 as
compared to 14.1% in 1994. The principal factors that contributed to the slight
decline of gross profit percentage were competitive market conditions and
pricing pressures experienced by several of the Company's divisions, as well as
the impact from certain larger Ampco System Parking Division contracts which had
lower gross profit percentages. However, the dollar amount of the Company's
gross profit increased resulting from higher revenues more than offset the
impact of a lower gross profit percentage in 1995. The total insurance expense
included in operating expenses and cost of goods sold increased 2% to $46
million in 1995 from $45 million in 1994. The increase in insurance expense was
proportionately less than the 9% increase in revenue growth in 1995 over 1994.
With the Company's continued emphasis on safety programs, management expects the
insurance costs to increase at a modest rate in relation to the revenue growth.
Selling, general and administrative expenses were $99.5 million in 1995, up
$3.4 million, or 4% from $96.1 million in 1994. As a percentage of revenues,
these expenses were down to 10% in 1995 from 11% in 1994. The selling, general
and administrative expenses declined as a percentage of revenues, reflecting the
Company's continued efforts to contain costs in this area. This percentage
decline in selling, general and administrative expenses was partially offset by
an increase in profit sharing expense.
Higher debt levels during 1995 caused the interest expense in 1995 to be
$3.7 million as compared with $3.5 million in 1994, an increase of $200,000, or
6%. The increase in interest expense was due to higher average bank borrowings
in 1995 primarily necessitated by acquisitions and interest assessed on fully
accrued state and federal income taxes.
The income tax provisions for the fiscal years 1995 and 1994 were based on
annual effective rates of 42.0% and 39.5%, respectively. The annual effective
rate for 1995 was higher than 1994 primarily due to the unavailability of
certain tax credits in 1995 that were previously available and also due to the
increase in nondeductible expenses.
Net income for 1995 was $18.2 million, an increase of 20%, compared to the
prior years net income of $15.2 million. As a result of the exercise of stock
options and purchases made by employees under the Company's Employee Stock
Purchase Plan, the number of common and common equivalent shares increased from
8,908,000 shares in 1994 to 9,590,000 shares in 1995, an increase of
approximately 8%. The resultant earnings per share increased 12% to $1.85 for
1995 compared to $1.65 in 1994. Earnings per share calculations include the
effects of a preferred stock dividend deduction of $512,000 for 1994 and 1995.
11
<PAGE>
The results of operations from the Company's three industry segments and its
operating divisions for 1995 as compared to 1994 are more fully described below:
Revenues for the Janitorial Divisions segment in 1995 were $512 million, an
increase of $30 million, or 6% over 1994, while its operating profits increased
by 10% over 1994. The Janitorial Divisions segment, which includes American
Building Maintenance and Easterday Janitorial Supply, accounted for
approximately 53% of the Company's consolidated revenues for 1995. Revenues of
American Building Maintenance increased by 6% in 1995 as compared to 1994 as a
result of acquisitions and internal growth by all of its regions except its
Southwest and Canadian Regions. As a result of the revenue increase, American
Building Maintenance' operating profits increased 10% in 1995 compared to 1994.
Labor and labor related expenses and other direct costs were slightly higher for
the fiscal year 1995 over the prior year primarily due to start-up expenses
associated with new contracts as well as acquisitions. This Division's operating
expenses (indirect, selling and administrative expenses excluding costs of goods
sold) were in line with its revenue growth. Easterday Janitorial Supply's
revenues for 1995 were up approximately 9% compared to 1994 generally due to
revenue increases in Northern California from obtaining several large customers.
An increase of 11% in operating profits was a result of a larger sales volume as
well as the Supply Division's efforts to control its selling, general and
administrative expenses, which were partially offset by lower margins resulting
from increased material costs.
Revenues from the Public Service Divisions segment for 1995 were $206
million, an increase of 18% over 1994. Public Service Divisions accounted for
approximately 21% of the Company's consolidated revenues in 1995. The operating
profits of this segment were up by 30% per the discussion that follows of its
Security Services and Ampco System Parking Divisions. The Security Division
reported an increase in revenues of 22% in 1995 compared to 1994 and its profits
increased by 10%, primarily due to obtaining new customers. This Division was
also successful in securing several large contracts, especially in the San
Francisco Bay Area. The gross profit amount increased as a result of higher
revenues; however, the gross profit percentage declined as the Division had to
bid for contracts at lower margins in order to be competitive. The Company's
Ampco System Parking Division's revenues increased by 17% while its profits
increased by 50% in 1995 over 1994. The increase in revenues was primarily due
to the January 1995 acquisition of a parking business based in Northern
California with operations in California and Hawaii, and also from obtaining
contracts to manage parking operations at several major U.S. airports. Several
factors contributed to the increase in operating profits: the acquisitions of
the parking business discussed above; improved business condition in its
Southern California region which was partially offset by loss of a few large
contracts in its Northeast Region; and income derived from its expanded airport
operations.
The Technical Divisions segment through its four divisions reported revenues
of $248 million, which represent approximately 26% of the Company's consolidated
revenues for 1995, and an increase of approximately 8% over last year. Profits
of the Technical Divisions were up 36% compared to 1994. The ABM Engineering
Services Division's revenues increased by 22% and reported a 45% increase in
operating profits for 1995 compared to 1994. Revenues increased generally from
the start-up of the Midwest and Northeast Regions and obtaining several new
contracts. Operating profits increased from new business and the reduction in
insurance and other direct expenses, as well as containing its selling, general
and administrative expenses. Revenues for Amtech Elevator Services Division were
down by 10% for 1995 from 1994, principally due to phasing out its new
construction market and a slow-down caused by the Mexican economy. However, this
Division increased its operating profits by 55% in 1995 over the prior year. The
improved operating results were due to a fundamental change in management's
strategy to emphasize services related to maintenance and repair business; this
change enabled Amtech Elevator Services to improve its gross profits.
Additionally, this Division's reduction of its selling, general and
administrative expenses was partially offset by currency translation losses
arising from its Mexican subsidiary. Amtech Lighting Services Division's
revenues were up 23% largely due to increased sales volume posted by the
majority of its branches through obtaining additional time and material
contracts, supplemented by increased business from its nationwide customers.
Operating profits increased by 18% during 1995, primarily due to increased sales
volume and efficiencies realized in the selling, general and administrative
areas, particularly in payroll, travel and other office expenses. The CommAir
Mechanical Services Division's revenues and operating profits for 1995 increased
by 9% and 37%, respectively. The revenue increase was primarily due to increased
level of construction and installation contracts. Although the margins on some
job categories decreased, this Division's successful efforts in increasing its
revenues, coupled with management's efforts to reduce overhead expenses, more
than offset the decrease in margins.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
ABM Industries Incorporated:
We have audited the accompanying consolidated balance sheets of ABM
Industries Incorporated and subsidiaries as of October 31, 1995 and 1996, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended October 31, 1996. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedule II. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ABM
Industries Incorporated and subsidiaries as of October 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended October 31, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule II, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
San Francisco, California
December 16, 1996
13
<PAGE>
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
OCTOBER 31 1995 1996
(in thousands of dollars except share amounts)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,840 $ 1,567
Accounts receivable (less allowances of $3,755 and $4,442) 158,075 183,716
Inventories 19,389 16,492
Deferred income taxes 11,429 11,684
Prepaid expenses and other current assets 19,134 20,296
- -----------------------------------------------------------------------------------------------------------
Total current assets 209,867 233,755
Investments and long-term receivables 5,988 15,941
Property, plant and equipment -- net 22,647 22,570
Intangible assets (less accumulated amortization of $19,688 and $23,995) 69,279 76,366
Deferred income taxes 18,745 22,046
Other assets 8,447 9,092
- -----------------------------------------------------------------------------------------------------------
$ 334,973 $ 379,770
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Current portion of long-term debt $ 679 $ 902
Bank overdraft 5,361 4,935
Trade accounts payable 25,453 27,091
Income taxes payable 2,270 1,864
Accrued liabilities:
Compensation 25,595 27,862
Taxes -- other than income 10,725 9,952
Insurance claims 27,532 23,256
Other 16,625 17,936
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 114,240 113,798
Long-term debt 22,575 33,664
Retirement plans 7,627 10,140
Insurance claims 42,345 51,475
- -----------------------------------------------------------------------------------------------------------
Total liabilities 186,787 209,077
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE PREFERRED STOCK,
6,400 shares authorized, issued and outstanding, stated at redemption value,
$1,000 per share 6,400 6,400
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized; none issued -- --
Common stock, $.01 par value; 28,000,000 shares authorized; 9,366,000 and
19,489,000 shares issued and outstanding in 1995 and 1996, respectively 94 195
Additional capital 40,627 48,548
Retained earnings 101,065 115,550
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 141,786 164,293
- -----------------------------------------------------------------------------------------------------------
$ 334,973 $ 379,770
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 1994 1995 1996
(in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME $ 884,633 $ 965,381 $ 1,086,925
- -----------------------------------------------------------------------------------------------------------
EXPENSES
Operating expenses and cost of goods sold 760,056 830,749 940,296
Selling, general and administrative 96,059 99,521 104,893
Interest 3,459 3,699 3,631
- -----------------------------------------------------------------------------------------------------------
859,574 933,969 1,048,820
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 25,059 31,412 38,105
Income taxes 9,890 13,193 16,385
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 15,169 $ 18,219 $ 21,720
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 0.82 $ 0.92 $ 1.05
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
COMMON AND COMMON EQUIVALENT SHARES 17,816 19,179 20,241
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCK
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 ------------------------ ADDITIONAL RETAINED
(in thousands, except per share amounts) SHARES AMOUNT CAPITAL EARNINGS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE OCTOBER 31, 1993 8,778 $ 88 $ 31,244 $ 78,856
Net income 15,169
Dividends:
Common stock (4,606)
Preferred stock (512)
Stock issued under employees' stock purchase and option plans 271 2 4,090
- -------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1994 9,049 90 35,334 88,907
Net income 18,219
Dividends:
Common stock (5,549)
Preferred stock (512)
Stock issued under employees' stock purchase and option plans 317 4 5,293
- -------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1995 9,366 94 40,627 101,065
Net income 21,720
Dividends:
Common stock (6,723)
Preferred stock (512)
Two-for-one stock split 9,669 97 (97)
Stock issued under employees' stock purchase and option plans 454 4 8,018
- -------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1996 19,489 $ 195 $ 48,548 $ 115,550
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 1994 1995 1996
(in thousands of dollars)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 868,041 $ 944,570 $ 1,055,112
Other operating cash receipts 1,638 1,931 1,270
Interest received 505 489 449
Cash paid to suppliers and employees (830,861) (912,617) (1,016,279)
Interest paid (3,982) (4,096) (3,468)
Income taxes paid (13,485) (16,438) (20,355)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,856 13,839 16,729
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,539) (10,225) (10,751)
Proceeds from sale of assets 162 590 777
Increase (decrease) in investments and long-term receivables 288 853 (5,657)
Intangible assets acquired (7,148) (12,499) (13,044)
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,237) (21,281) (28,675)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 4,092 5,297 8,022
Dividends paid (5,118) (6,061) (7,235)
Increase (decrease) in bank overdraft (4,231) 5,361 (426)
Increase (decrease) in notes payable -- (4) 223
Long-term borrowings 50,000 89,000 110,777
Repayments of long-term borrowings (45,682) (91,679) (99,688)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (939) 1,914 11,673
- ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 5,680 (5,528) (273)
Cash and cash equivalents beginning of year 1,688 7,368 1,840
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF YEAR $ 7,368 $ 1,840 $ 1,567
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 15,169 $ 18,219 $ 21,720
ADJUSTMENTS:
Depreciation and amortization 9,300 11,527 13,651
Provision for bad debts 1,915 1,536 2,039
Gain on sale of assets (141) (127) (314)
Deferred income taxes (2,353) (3,554) (3,556)
Increase in accounts receivable (14,793) (18,823) (26,890)
Decrease (increase) in inventories (1,132) (1,969) 516
Increase in prepaid expenses and other current assets (2,139) (6,906) (1,170)
Increase in other assets (1,070) (1,434) (645)
(Decrease) increase in income taxes payable (1,242) 309 (414)
Increase in retirement plans accrual 1,404 1,649 2,513
Increase in insurance claims liability 4,086 4,462 4,854
Increase in trade accounts payable and other accrued liabilities 12,852 8,950 4,425
- ---------------------------------------------------------------------------------------------------------
Total adjustments to net income 6,687 (4,380) (4,991)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 21,856 $ 13,839 $ 16,729
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
ABM Industries Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of ABM Industries Incorporated and its subsidiaries (the
"Company"). All material intercompany transactions and balances have been
eliminated. Certain reclassifications of prior year amounts have been made to
conform with the current year presentation.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and related notes to financial statements. Changes in such
estimates may affect amounts reported in future periods.
ACCOUNTS RECEIVABLE: The Company's accounts receivable are principally
trade receivables arising from services provided to its customers and are
generally due and payable on terms varying from the receipt of invoice to net
thirty days. The Company does not believe that it has any material exposure due
to either industry or regional concentrations of credit risk.
INVENTORIES: Inventories are valued at amounts approximating the lower of
cost (first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost less accumulated depreciation and amortization. At the time property, plant
and equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income. Maintenance and repairs are charged against income.
Depreciation and amortization are calculated principally on the
straight-line method. Lives used in computing depreciation for transportation
equipment average 3 to 5 years and 2 to 20 years for machinery and other
equipment. Buildings are depreciated over periods of 20 to 40 years. Leasehold
improvements are amortized over the shorter of the terms of the respective
leases, or the assets' useful lives.
INTANGIBLE ASSETS: Intangible assets consist of goodwill in the amount of
$98,648,000 and other intangible assets in the amount of $1,713,000, net of
accumulated amortization of $23,995,000. Goodwill, which represents the excess
of cost over fair value of tangible assets of businesses acquired, is amortized
on a straight-line basis over periods not exceeding 40 years. It is the
Company's policy to carry goodwill applicable to acquisitions prior to 1971 of
$1,450,000 at cost until such time as there may be evidence of diminution in
value.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company annually reviews its
long-lived assets, including goodwill. Impairment is evaluated on the basis of
whether the asset is fully recoverable from projected, undiscounted net cash
flows of the related business unit, in accordance with Statement of Financial
Accounting Standards No. 121. Impairment would be recognized in operating
results if a permanent diminution in value were to occur. As of October 31,
1996, there has been no impairment of intangibles.
INCOME TAXES: Income tax expense is based on reported results of operations
before income taxes. In accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, deferred income taxes reflect
the impact of temporary differences between the amount of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for tax
purposes. These deferred taxes are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
REVENUE RECOGNITION: Revenues are generally recorded at the time services
are performed or when products are shipped.
NET INCOME PER COMMON SHARE: Net income per common share and common
equivalent share (principally outstanding stock options), after the reduction
for preferred stock dividends in the amount of $512,000 in 1994, 1995 and 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.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
instruments with original maturities of three months or less to be cash and cash
equivalents.
17
<PAGE>
2. INSURANCE
Certain insurable risks such as general liability, property damage and
workers' compensation are self-insured by the Company. However, the Company has
umbrella insurance coverage for certain risk exposures subject to specified
limits. Accruals for claims under the Company's self-insurance program are
recorded on a claim-incurred basis. Under this program, the estimated liability
for claims incurred but unpaid at October 31, 1995 and 1996 was $69,877,000 and
$74,731,000, respectively. In connection with certain self-insurance agreements,
the Company has standby letters of credit at October 31, 1996 supporting the
estimated unpaid liability in the amounts of $70,818,000.
3. INVENTORIES
The inventories at October 31, consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Janitorial supplies and equipment held for sale $ 3,301 $ 4,095
Parts and materials 14,444 10,971
Work in process 1,644 1,426
- -------------------------------------------------------------------------------------------------------
$19,389 $16,492
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT -- NET
Property, plant and equipment at October 31, consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,718 $ 960
Buildings 4,647 3,790
Transportation equipment 9,825 9,750
Machinery and other equipment 37,076 39,899
Leasehold improvements 8,382 8,202
- -------------------------------------------------------------------------------------------------------
61,648 62,601
Less accumulated depreciation and amortization 39,001 40,031
- -------------------------------------------------------------------------------------------------------
$22,647 $22,570
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
5. LONG-TERM DEBT AND CREDIT AGREEMENT
In September 1994, the Company signed a $100,000,000 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. This agreement was amended effective
May 1, 1995 to increase the amount available to $125,000,000. The unsecured
revolving credit facility provides, at the Company's option, interest at the
prime rate or IBOR+.45%. The facility calls for a commitment fee payable
quarterly, in arrears, of .15% based on the average daily unused portion. For
purposes of this calculation, irrevocable standby letters of credit issued in
conjunction with the Company's self-insurance program plus cash borrowings are
considered to be outstanding amounts. As of October 31, 1996, the total
outstanding amount under this facility was $99,478,000 comprised of $28 million
in loans and $71,478,000 in standby letters of credit. The interest rate at
October 31, 1996 on loans outstanding under this agreement ranged from 5.825% to
8.25%. The Company is required, under this agreement to maintain financial
ratios and places certain limitations on dividend payments. The Company is
prohibited from 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 provides a seven-year term loan of $5 million; 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.
In 1993 the company acquired a 9.35% fixed rate note with a major insurance
company. The balance outstanding as of October 31, 1996 is $1,273,000. Terms
call for monthly interest payments and equal annual principal payments through
October 1, 1998.
The long-term debt of $34,566,000 matures in the years ending October 31 as
follows: $902,000 in 1997; $29,384,000 in 1998; $783,000 in 1999; $837,000 in
2000; $852,000 in 2001, and $1,808,000 in subsequent years.
Long-term debt at October 31, is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to bank with interest at 5.83 - 8.25% $21,000 $28,000
Note payable to bank with interest at 6.78% -- 5,000
Note payable to insurance company with interest at 9.35% 1,909 1,273
Notes payable with interest at 8.75% 345 293
- -------------------------------------------------------------------------------------------------------
23,254 34,566
Less current portion 679 902
- -------------------------------------------------------------------------------------------------------
$22,575 $33,664
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
6. EMPLOYEE BENEFIT PLANS
(A) RETIREMENT AGREEMENTS
The Company has unfunded retirement agreements for 36 current and former
directors and senior executives, all of which are fully vested. The agreements
provide for annual benefits for ten years commencing with the respective
retirement dates of those executives. The benefits are accrued over the period
these directors and senior executives are expected to
18
<PAGE>
be employed by the Company. During 1994, 1995 and 1996, amounts accrued under
these agreements were $334,000 $417,000, and $398,000 respectively. Payments
were made in 1994, 1995, and 1996 in the amounts of $112,000, $322,000 and
$124,000, respectively.
(B) 401(K) AND PROFIT SHARING PLAN
The Company has a profit sharing and 401(k) plan covering all nonmanual
employees (except highly compensated individuals) not covered under collective
bargaining agreements, which includes employer participation in accordance with
the provisions of Section 401(k) of the Internal Revenue Code. The plan allows
participants to make pretax contributions and the Company matches certain
percentages of employee contributions depending on the participant's length of
service. The profit sharing portion of the plan is discretionary and
non-contributory. All amounts contributed to the plan are deposited into a trust
fund administered by independent trustees.
The Company provided for profit sharing contributions of $385,000, $920,000
and $1,084,000 for 1994, 1995 and 1996, respectively. The Company's matching
401(k) contributions required by the plan for 1994, 1995 and 1996 were
approximately $500,000, $602,000 and $664,000, respectively.
(C) SERVICE AWARD BENEFIT PLAN
The Company established an unfunded service award benefit plan effective
November 1, 1989, with a retroactive vesting period of five years. This plan is
a "severance pay plan" as defined by the Employee Retirement Income Security Act
(ERISA) and covers all highly compensated nonmanual employees excluded from the
Profit Sharing and Employee Savings Plan discussed above. The plan provides
participants, upon termination, with a guaranteed seven days pay for each year
of employment subsequent to November 1, 1989. The Company, at its discretion,
may also award additional days each year.
Net cost of the plan is comprised of:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(in thousands of dollars) 1994 1995 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 324 $ 352 $ 371
Interest 108 139 176
- ---------------------------------------------------------------------
Net cost $ 432 $ 491 $ 547
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 1,436 $ 1,863 $ 2,436
Accumulated benefit obligation $ 1,523 $ 1,949 $ 2,522
Projected benefit obligation $ 1,970 $ 2,470 $ 3,064
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plan as of October 31 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands of dollars) 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7% 7% 7%
Rates of increase in compensation level 5% 5% 5%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(D) PENSION PLAN UNDER COLLECTIVE BARGAINING
Certain employees of the Company are covered under union-sponsored
collectively bargained multi-employer defined benefit plans. Contributions for
these plans were approximately $10,800,000, $10,100,000 and $11,900,000 in 1994,
1995 and 1996, respectively. These plans are not administered by the Company and
contributions are determined in accordance with provisions of negotiated labor
contracts.
7. LEASE COMMITMENTS AND RENTAL EXPENSE
The Company is obligated under noncancelable operating leases for various
facilities and equipment. Assets held under these leases consist of offices,
warehouses, vehicles and parking facilities.
As of October 31, 1996, future minimum lease commitments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
Years ending (in thousands of dollars)
- -----------------------------------------------------
<S> <C>
1997 $ 46,964
1998 31,128
1999 15,378
2000 7,811
2001 4,147
Thereafter 15,403
- -----------------------------------------------------
Total minimum lease commitments $ 120,831
- -----------------------------------------------------
- -----------------------------------------------------
</TABLE>
Rental expense for the years ended October 31, is summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in thousands of dollars) 1994 1995 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals under
noncancelable leases $ 36,724 $ 47,114 $ 50,834
Contingent rentals 17,398 16,400 29,470
Short-term rental agreements 20,855 23,835 11,364
- ------------------------------------------------------------------
$ 74,977 $ 87,349 $ 91,668
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
Contingent rentals are applicable to leases of parking lots and garages and
are based on percentages of the gross receipts attributable to the related
facilities.
8. COMMITMENTS AND CONTINGENCIES
The Company and certain of its subsidiaries have been named defendants in
certain litigation arising in
19
<PAGE>
the ordinary course of business. In the opinion of management, based on advice
of legal counsel, such matters should have no material effect on the Company's
consolidated financial statements taken as a whole.
9. REDEEMABLE CUMULATIVE PREFERRED STOCK
On June 23, 1993, the Company authorized 6,400 shares of preferred stock
having a par value of $0.01 per share. These shares designated as Series B 8%
Senior Redeemable Cumulative Preferred Stock (Series B Preferred Stock) shall be
entitled to one vote per share on all matters upon which common stockholders are
entitled to vote and have a redemption price of $1,000 per share, together with
accrued and unpaid dividends thereon. Redemption of the Series B Preferred Stock
is at the option of the holders for any or all of the outstanding shares after
September 1, 1998 or at the option of the Company after September 1, 2002. The
total redemption value of the shares outstanding at October 31 in an amount of
$6,400,000 is classified on the Company's balance sheet as redeemable cumulative
preferred stock. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, holders of the Series B Preferred Stock shall be
paid the redemption price plus all accrued dividends to the date of liquidation,
dissolution or winding up of affairs before any payment to other stockholders.
On September 1, 1993, the Company issued 6,400 shares of its Series B
Preferred Stock in conjunction with the acquisition of System Parking. The
acquisition agreement provided that one-half, or 3,200 shares, of the Series B
Preferred Stock be placed in escrow and will be released upon certain earnout
requirements. As of October 31, 1996 none of these shares have been released.
Dividends of $128,000 are due and payable each quarter and are deducted from
net income in determining net income per common share.
10. CAPITAL STOCK
The Company is authorized to issue 500,000 shares of preferred stock, of
which 50,000 shares have been designated as Series A Junior Participating
Preferred Stock of $.01 par value. None of these preferred shares have been
issued.
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. The stated par value of the shares was not
changed from $0.01. A total of $96,690 was reclassified from the Company's
additional paid in capital account to the Company's common stock account. All
share and per share amounts have been restated to retroactively reflect the
stock split.
In 1984, the Company adopted an executive stock option plan whereby 680,000
shares were reserved for grant. In March of 1996, another 1,000,000 shares were
reserved for grant under the plan. As amended December 20, 1994, options which
have been granted at fair market value are 50% exercisable when the option
holders reach their 61st birthday and the remaining 50% will vest on their 64th
birthday. To the extent vested, the options may be exercised at any time prior
to one year after termination of employment. Options which terminate without
being exercised may be reissued. At October 31, 1996, 78,000 options were
exercisable at $5.72-$11.25 and 1,017,000 options remained available for grant.
Transactions under this plan, restated for the two-for-one stock split, are
summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
<S> <C> <C>
Balance October 31, 1993 464,000 $5.72 - $8.72
Options terminated (6,000) $5.72
- ---------------------------------------------------------------
Balance October 31, 1994 458,000 $5.72 - $8.72
Granted 209,000 $11.25 - $13.28
Options exercised (12,000) $5.72
- ---------------------------------------------------------------
Balance October 31, 1995 655,000 $5.72 - $13.28
Options terminated (16,000) $11.25
- ---------------------------------------------------------------
Balance October 31, 1996 639,000 $5.72 - 13.28
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
In 1985, the Company instituted an employee stock purchase plan under which
sale of 5 million shares of its common stock has been authorized. In March of
1996, the sale of an additional 1,200,000 shares under this plan was authorized.
The purchase price of the shares under the plan is the lesser of 85% of the fair
market value at the commencement of each plan year or 85% of the fair market
value on the date of purchase. Employees may designate up to 10% of their
compensation for the purchase of stock. During 1994, 1995 and 1996, 255,000,
283,000 and 562,000 shares of stock were issued under the plan for an aggregate
purchase price of $3,849,000, $4,805,000 and $6,437,000, respectively. At
October 31, 1996, 1,376,455 shares remained unissued under the plan.
In 1987, the Company adopted a stock option plan under which 1,200,000
shares were reserved for grant until December 31, 1996. In March 1994, this plan
was amended to reserve an additional 1,000,000 shares. In March 1996, the plan
was amended again to reserve another 2,000,000 shares. During 1994, 909,000
options were granted at a fair market price of
20
<PAGE>
$8.91 and $9.80. During 1995, 36,000 options were granted at a fair market price
of $10.32 to $13.28. During 1996, 956,100 options were granted at a fair market
price of $13.32 to $18.75. Options which terminate without being exercised may
be reissued.
Transactions under this plan, restated for the two-for-one stock split, are
summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
<S> <C> <C>
Balance October 31, 1993 967,730 $ 4.79 - $ 8.49
Granted 909,000 $ 8.91 - $ 9.80
Options exercised (31,200) $ 6.06 - $ 8.49
Options terminated (52,800) $ 6.06 - $ 8.49
- ---------------------------------------------------------------
Balance October 31, 1994 1,792,730 $ 4.79 - $ 9.80
Granted 36,000 $10.32 - $13.28
Options exercised (54,610) $ 6.06 - $ 8.91
Options terminated (44,400) $ 6.06 - $10.32
- ---------------------------------------------------------------
Balance October 31, 1995 1,729,720 $ 4.79 - $13.28
Granted 928,100 $13.32 - $18.75
Options exercised (194,740) $ 6.06 - $ 9.33
Options terminated (64,800) $ 8.91 - $13.32
- ---------------------------------------------------------------
Balance October 31, 1996 2,398,280 $ 4.79 - $18.75
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
At October 31, 1996, there were 901,468 options exercisable at $6.06-$13.28
and 1,300,980 options remained available for grant.
On April 22, 1988, the Company distributed a dividend of one-half of one
right for each outstanding share of common stock. The rights are attached to all
outstanding shares of common stock. Each right entitles the holder to purchase
1/100 of a share of the Series A Junior Participating Preferred Stock for $80,
subject to adjustment. The rights are exercisable only after a third party
(other than Sydney and Theodore Rosenberg, individually or as members of a
group, or their permitted transferees) acquires 20% or more or commences a
tender offer which would result in such party's acquiring 30% or more of the
Company's common stock.
After the rights become exercisable, if the Company is acquired and is not
the surviving corporation or 50% or more of its assets or its earnings power is
transferred, each right will entitle its holder to purchase shares of the
acquiring company at a 50% discount. If the Company is acquired and is the
surviving corporation, or a 20% or greater holder engages in "self-dealing"
transactions or increases its beneficial ownership of the Company by more than
1% in a transaction involving the Company, each right will entitle its holder,
other than the acquirer, to purchase common stock of the Company at a similar
50% discount. The rights expire on April 22, 1998, and may be redeemed at a
price of $.01 under certain circumstances.
11. INCOME TAXES
The provision for income taxes is made up of the following components for
each of the years ended October 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in thousands of dollars) 1994 1995 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 9,621 $ 14,630 $ 17,368
State 1,992 2,016 2,521
Foreign 630 100 52
Deferred
Federal 2,111 3,237 3,250
State 242 316 306
- ------------------------------------------------------------------
$ 9,890 $ 13,193 $ 16,385
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
Income tax expense attributable to income from operations differs from the
amounts computed by applying the U.S. statutory rates to pretax income from
operations as a result of the following for the years ended October 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local taxes on income, net
of federal tax benefit 4.5% 3.4% 3.8%
Targeted job tax credits (2.6)% (1.5)% (0.1)%
Nondeductible expenses and other --
net 2.6% 5.1% 4.3%
- --------------------------------------------------------------------------
39.5% 42.0% 43.0%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
are presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(in thousands of dollars) 1995 1996
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Self-insurance claims $ 25,396 $ 27,260
Bad debt allowance 1,737 2,015
Deferred and other compensation 3,719 4,316
State taxes 827 955
Other 1,060 2,236
- -----------------------------------------------------------------
Total gross deferred tax assets 32,739 36,782
- -----------------------------------------------------------------
Deferred tax liabilities:
Union pension contributions (2,426) (2,900)
Customer lists (21) --
Depreciation (118) (152)
- -----------------------------------------------------------------
Total gross deferred tax liabilities (2,565) (3,052)
- -----------------------------------------------------------------
Net deferred tax assets $ 30,174 $ 33,730
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
At October 31, 1996, ABM has a capital loss carryover of $1,283,262, which
can be carried forward to offset capital gains, if any, to reduce future federal
income taxes through October 31, 2001.
21
<PAGE>
12. ACQUISITIONS AND DIVESTITURES
All acquisitions have been accounted for using the purchase method of
accounting; operations of the companies and businesses acquired have been
included in the accompanying consolidated financial statements from their
respective dates of acquisition. The excess of the purchase price over fair
value of the net assets acquired is generally included in goodwill. Most
purchase agreements provide for contingent payments based on the annual pretax
income for subsequent periods ranging generally from three to five years. Any
such future payments are generally capitalized as goodwill when paid. Cost of
acquisitions, including amounts based on subsequent earnings, were approximately
$7.1 million in 1994, $12.5 million in 1995, and $13 million in 1996.
Acquisitions and dispositions made during the fiscal year 1996 are discussed
below:
On November 1, 1995, the Company acquired the janitorial operations of
Corporate Custodial of America in San Diego, California and Phoenix, Arizona. In
addition to the amount paid in cash at closing of this transaction, annual
contingent payments based on gross profit of acquired contracts will be made
over a three-year period. For the 1996 fiscal year, this acquisition added
approximately $1.4 million in revenues for the Janitorial Division.
On April 1, 1996, the Company acquired the janitorial operations of Al-Brite
Janitorial Services of Tucson, Arizona. In addition to amounts paid at closing,
the acquisition agreement provides for additional payments over the subsequent
four years based upon the gross profit of contracts acquired. For the fiscal
year ended October 31, 1996, this acquisition contributed $546,000 to the
revenues of the Janitorial Division.
The maintenance and security contracts of CBM Industries of Minneapolis,
Minnesota were acquired effective May 1, 1996, and this acquisition contributed
approximately $7.3 million in janitorial and security services revenues for the
year ended October 31, 1996. The terms of the purchase for this acquisition were
a cash downpayment 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 Total Building Services of Detroit,
Michigan were acquired effective June 1,1996. This acquisition contributed
approximately $5.1 million in janitorial service revenues for the year ended
October 31, 1996. The terms of the purchase for this acquisition were a cash
downpayment 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 Marathon Cleaners, Incorporated of
Nashville, Tennessee were acquired effective August 1,1996, and contributed
approximately $334,000 in janitorial service revenues for the year ended October
31, 1996. The terms of the 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 sold its Mexican subsidiary,
Internacionales de Elevadores, S.A. de C.V. to an unrelated investment group.
The terms of the closing agreement included a cash downpayment and a note
receivable of $5.4 million 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. The operating losses from this subsidiary included in the consolidated
statements of income for the fiscal years ended October 31, 1996, 1995 and 1994
were $653,000, $18,000 and $860,000, respectively.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate fair value due to the short-maturity of these
instruments.
22
<PAGE>
Financial instruments included in investments and long-term receivables have
no quoted market prices and, accordingly, a reasonable estimate of fair market
value could not be made without incurring excessive costs. However, the Company
believes by reference to stated interest rates and security held, the fair value
of the assets would not differ significantly from the carrying value.
The fair value of the Company's long-term debt approximates carrying value
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
The Company believes that it is not practical to estimate a fair market
value different from the redeemable cumulative preferred stock's carrying value
of $6.4 million, as this security was issued in conjunction with an acquisition
and has numerous features unique to this security as described in Note 9.
14. QUARTERLY INFORMATION (UNAUDITED)
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL QUARTER
--------------------------------------
OPERATIONS FIRST SECOND THIRD FOURTH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Revenues and other income $232,062 $234,396 $245,792 $253,131 $965,381
Gross profit 32,139 33,407 33,325 35,761 134,632
Net income 3,387 3,943 5,010 5,879 18,219
Net income per common share 0.17 0.20 0.26 0.29 0.92
1996
Revenues and other income $254,401 $262,069 $281,911 $288,544 $1,086,925
Gross profit 33,944 35,290 37,310 40,085 146,629
Net income 4,048 4,700 6,036 6,936 21,720
Net income per common share 0.20 0.23 0.29 0.33 1.05
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Per share amounts have been restated to retroactively reflect the two-for-one
common stock split on July 15, 1996.
15. SEGMENT INFORMATION
The operations of the Company are divided into the following three business
segments of the building services industry for financial reporting purposes:
JANITORIAL DIVISIONS: Provides janitorial cleaning services as well as
janitorial supplies and equipment to its customers. Services provided include
floor cleaning and finishing, wall and window washing, furniture polishing, rug
cleaning, dusting, and other building cleaning services. In addition, this
segment markets janitorial supplies and equipment which include paper products,
disinfectants, floor cleaners, polishes, glass cleaners, waxes and cleaning
equipment.
PUBLIC SERVICE DIVISIONS: Operates approximately 1,400 parking lots and garages
which are either leased from or managed for third parties. This segment also
provides commercial security guards and special investigative and security
consulting services.
TECHNICAL DIVISIONS: Provides a wide range of elevator, engineering, HVAC
(heating, ventilation, and air conditioning) and lighting services through its
four divisions. This includes on-site operating engineers to operate, maintain
and repair electrical, mechanical, and plumbing systems primarily for high-rise
office buildings. It also provides installation, repair and maintenance of
elevators and escalators, indoor and outdoor lighting fixtures, and heating,
ventilation and air conditioning equipment as well as energy management
consulting services.
23
<PAGE>
SEGMENT INFORMATION (in thousands of dollars):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLIC
JANITORIAL SERVICE TECHNICAL CONSOLIDATED
FOR THE YEAR ENDED OCTOBER 31, 1994 DIVISIONS DIVISIONS DIVISIONS CORPORATE ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and other income $481,604 $173,707 $228,962 $ 360 $ $884,633
Intersegment revenues 9,944 61 175 (10,180) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $491,548 $173,768 $229,137 $ 360 $(10,180) $884,633
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 22,045 $ 6,480 $ 10,817 $(10,824) $ $ 28,518
Interest, expense (36) (10) (632) (2,781) (3,459)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 22,009 $ 6,470 $ 10,185 $(13,605) $ $ 25,059
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $111,869 $ 71,418 $ 81,913 $ 34,270 $ $299,470
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,283 $ 1,328 $ 1,723 $ 409 $ $ 5,743
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 1,298 $ 1,619 $ 640 $ $ $ 3,557
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,946 $ 2,092 $ 1,987 $ 1,514 $ $ 8,539
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and other income $511,801 $205,578 $247,748 $ 254 $ $965,381
Intersegment revenues 11,135 75 239 (11,449) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $522,936 $205,653 $247,987 $ 254 $(11,449) $965,381
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 24,211 $ 8,449 $ 14,665 $(12,214) $ $ 35,111
Interest, expense (34) (11) (93) (3,561) (3,699)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 24,177 $ 8,438 $ 14,572 $(15,775) $ $ 31,412
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $130,657 $ 82,580 $ 90,403 $ 31,333 $ $334,973
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,706 $ 1,701 $ 1,964 $ 563 $ $ 6,934
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 1,832 $ 2,085 $ 676 $ $ $ 4,593
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 3,871 $ 3,405 $ 2,248 $ 701 $ $ 10,225
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and other income $607,355 $226,312 $252,854 $ 404 $ 1$,086,925
Intersegment revenues 12,829 65 350 (13,244) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $620,184 $226,377 $253,204 $ 404 $(13,244) 1$,086,925
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 29,006 $ 9,626 $ 15,469 $(12,365) $ $ 41,736
Interest, expense (29) (11) 4 (3,595) (3,631)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 28,977 $ 9,615 $ 15,473 $(15,960) $ $ 38,105
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $157,656 $ 90,129 $ 85,872 $ 46,113 $ $379,770
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 3,565 $ 2,176 $ 2,080 $ 589 $ $ 8,410
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 2,506 $ 2,085 $ 650 $ 0 $ $ 5,241
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 5,607 $ 2,902 $ 1,858 $ 384 $ $ 10,751
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Intersegment revenues are recorded at prices negotiated between the entities.
24
<PAGE>
SCHEDULE II
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED VALUATION ACCOUNTS
For the Three Years Ended October 31, 1994, 1995 and 1996
(in thousands of dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE CHARGES TO DEDUCTIONS
BEGINNING COSTS AND NET OF OTHER ADDITIONS
OF YEAR EXPENSES RECOVERIES (REDUCTIONS)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Years ended October 31:
1994 $ 3,101 $ 1,915 $ (1,949) --
1995 3,067 1,536 (848) --
1996 3,755 2,039 (1,352) --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
BALANCE END
OF YEAR
- -------------------------------------------------------------------
<S> <C>
Allowance for Doubtful Accounts
Years ended October 31:
1994 $ 3,067
1995 3,755
1996 4,442
- -------------------------------------------------------------------
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference to the
information set forth under the caption "Election of Directors" contained in the
Proxy Statement to be used by the Company in connection with its 1997 Annual
Meeting of Stockholders. See also the cover page of this Form 10-K and item 1.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" contained in
the Proxy Statement to be used by the Company in connection with its 1997 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference to the
information set forth under the caption "Principal Stockholders" contained in
the Proxy Statement to be used by the Company in connection with its 1997 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to the
information set forth under the captions "Executive Compensation" and "Certain
Relationships and Related Transactions" contained in the Proxy Statement to be
used by the Company in connection with the 1997 Annual Meeting of Stockholders.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS FORM 10-K:
1. and 2. Consolidated Financial Statements and Consolidated
Financial Statement Schedule.
The following consolidated financial statements of ABM Industries
Incorporated and subsidiaries are included in Item 8:
Independent Auditors' Report
Consolidated balance sheets -- October 31, 1995 and 1996
Consolidated statements of income -- Years ended October 31, 1994,
1995 and 1996
Consolidated statements of stockholders' equity -- Years ended
October 31, 1994, 1995 and 1996
Consolidated statements of cash flows -- Years ended October 31,
1994, 1995 and 1996
Notes to consolidated financial statements -- October 31, 1996.
The following consolidated financial statement schedule of ABM Industries
Incorporated and subsidiaries is included in Item 8.
Schedule II--Consolidated Valuation Accounts for the Three Years Ended
October 31, 1994, 1995 and 1996.
All other schedules are omitted because they are not applicable or because
the required information is included in the consolidated financial statements or
the notes thereto.
The individual financial statements of the registrant's subsidiaries have
been omitted since the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements are wholly-owned
subsidiaries.
<TABLE>
<CAPTION>
--------------------------------------------------
<C> <S> <C>
Exhibit
Number Description
<CAPTION>
---------------------------------------------------------------
<C> <S> <C>
3.1 [j] Certificate of Incorporation, as amended.
3.2 [a] Restated Bylaws, as amended effective September 19, 1995.
4.1 [l] Credit Agreement, dated September 22, 1994, between Bank of America
National Trust and Savings Association and the Company.
4.2 [k] First Amendment to Credit Agreement dated September 22, 1994.
4.3 [k] Second Amendment to Credit Agreement dated September 22, 1994.
4.4 [c] Third Amendment to Credit Agreement dated February 6, 1996.
4.5 [c] Business Loan Agreement dated February 13, 1996.
10.2 [j]* 1985 Employee Stock Purchase Plan as amended effective December 19, 1995.
10.3 [b]* Supplemental Medical and Dental Plan.
10.4 [j]* 1984 Executive Stock Option Plan as amended effective December 19, 1995.
10.7 [f]* Executive Employment Agreement with Sydney J. Rosenberg.
10.9 [f]* Short Form Deed of Trust and Assignment of Rents (dated December 17, 1991)
between the Company and John F. Egan, together with the related Promissory
Note (dated January 1, 1992).
10.13 [j]* 1987 Stock Option Plan as amended effective December 19, 1995.
10.16 [d] Rights Agreement, dated as of April 11, 1988, between the Company and Bank
of America National Trust and Savings Association, as Rights Agent with
Chemical Trust Company of California as successor-in-interest to Bank of
America as Rights Agent.
10.19 [e]* Service Award Plan.
10.20 [f]* Executive Employment Agreement with William W. Steele.
10.21 [f]* Amended and Restated Retirement Plan for Outside Directors.
10.22 [f]* Amendment No. 1 to Service Award Plan.
10.23 [g]* Form of Outside Director Retirement Agreement (dated June 16, 1992).
10.24 [g]* Executive Employment Agreement with John F. Egan.
10.25 [g]* Executive Employment Agreement with Jess. E. Benton, III.
10.27 [h] Guaranty of American Building Maintenance Industries, Inc.
10.28 [i]* Deferred Compensation Plan.
10.29 [i]* Form of Existing Executive Employment Agreement Other Than Those Named
Above.
10.30 [l]* Executive Employment Agreement with Martinn H. Mandles, as amended by
Amendments One and Two.
10.31 [l]* Amendment of Corporate Executive Employment Agreement with William W.
Steele.
10.32 [l]* First and Second Amendments of Corporate Executive Employment Agreement
with John F. Egan.
10.33 [l]* Amendment of Corporate Executive Employment Agreement with Sydney J.
Rosenberg.
10.34 [l]* First and Second Amendments of Corporate Executive Employment Agreement
with Jess E. Benton, III.
10.35 [l]* Form of Amendments of Corporate Executive Employment Agreements with Other
Than Those Named Above.
10.36 [m]* Form of Indemnification for Directors.
10.37 * Second Amendment of Corporate Executive Employment Agreement with William
W. Steele.
10.38 * Second Amendment of Corporate Executive Employment Agreement with Sydney J.
Rosenberg.
10.39 * Third Amendment of Corporate Executive Employment Agreement with Martinn H.
Mandles.
22.1 Subsidiaries of the Registrant.
24.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE.)
26
<PAGE>
- ------------------------------
[a] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1995.
[b] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1984.
[c] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended January 31, 1996.
[d] Incorporated by reference to exhibit 1 to the Company's report on Form 8-K
dated April 11, 1988.
[e] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1990.
[f] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1991.
[g] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended July 31, 1992.
[h] Incorporated by reference to the exhibit bearing the same numeric reference
which was filed as an exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended July 31, 1993.
[i] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1993.
[j] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended April 30, 1996.
[k] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended April 30, 1995.
[l] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1994.
[m] Incorporated by reference to exhibit 10.20 which was filed as an exhibit to
the Company's quarterly report on Form 10-Q for the fiscal quarter ended
April 30, 1991.
* Management contract, compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
27
<PAGE>
<TABLE>
<S> <C> <C>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Sydney J. Rosenberg
-------------------------------------------------
Sydney J. Rosenberg
Chairman of the Board and Director
January 27, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
</TABLE>
<TABLE>
<S> <C>
/s/ Sydney J. Rosenberg /s/ David H. Hebble
-------------------------------------------------- --------------------------------------------------
Sydney J. Rosenberg David H. Hebble
Chairman of the Board and Director Vice President and
January 27, 1997 Chief Financial Officer
(Principal Financial Officer)
January 27, 1997
/s/ William W. Steele /s/ Hussain A. Khan
-------------------------------------------------- --------------------------------------------------
William W. Steele, President, Hussain A. Khan, Corporate Controller
Chief Executive Officer and Director (Principal Accounting Officer)
January 27, 1997 January 27, 1997
/s/ B. Cattani /s/ John F. Egan
-------------------------------------------------- --------------------------------------------------
Maryellen B. Cattani, Director John F. Egan
January 27, 1997 Vice President and Director
January 27, 1997
/s/ Luke S. Helms /s/ Charles T. Horngren
-------------------------------------------------- --------------------------------------------------
Luke S. Helms, Director Charles T. Horngren, Director
January 27, 1997 January 27, 1997
/s/ Henry L. Kotkins, Jr. /s/ Martinn H. Mandles
-------------------------------------------------- --------------------------------------------------
Henry L. Kotkins, Jr., Director Martinn H. Mandles
January 27, 1997 Executive Vice President and Director
January 27, 1997
/s/ Theodore Rosenberg /s/ William E. Walsh
-------------------------------------------------- --------------------------------------------------
Theodore Rosenberg, Chairman of the William E. Walsh, Director
Executive Committee and Director January 27, 1997
January 27, 1997
</TABLE>
28
<PAGE>
EXHIBIT 10.37
October 1, 1996
Mr. William W. Steele
ABM Industries Incorporated
50 Fremont Street, 26th Floor
San Francisco, CA 94105
RE: SECOND AMENDMENT OF CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT
Dear Bill:
As you are aware, your employment agreement ("Agreement") currently in effect
(previously amended effective November 1, 1994) is hereby modified in accordance
with the recommendations of the Board of Directors' Officer Compensation & Stock
Option Committee. This shall constitute the Second Amendment of the Agreement
which shall be effective November 1, 1996, as follows:
PARAGRAPH C. DUTIES & RESPONSIBILITIES shall be amended in its entirety to read:
"Mr. Steele shall be expected to assume and perform such executive and
managerial duties and responsibilities as are assigned from time-to-time by the
Board of Directors of ABM (the "Company"), to whom Mr. Steele shall report and
be accountable.
PARAGRAPH E. TERM OF AGREEMENT shall be amended in its entirety to read:
"Employment hereunder shall commence on November 1, 1996 for an initial term of
forty-eight (48) months, ending October 31, 2000 ("Initial Term") unless sooner
terminated pursuant to Paragraph O hereof, or later extended pursuant to
Paragraph N hereof ("Extended Term")."
PARAGRAPH X.1(a) SALARY shall be amended in its entirety to read:
"(a) Five Hundred Fifty Two Thousand Dollars ($552,000) from 11/1/96
through 10/31/97."
PARAGRAPH X.2.(d) BONUS shall be amended in its entirety to read: "Subject to
proration in the event of modification or termination of employment hereunder
(and further subject to the provisions of Paragraph X.2.(f) per the 11/1/94
amendment of Agreement), Mr. Steele's Bonus calculation shall be in two parts:
(i) the maximum Bonus for each Fiscal Year of the Company based upon the total
profit of the Company ("Total Profit Bonus") shall be fifty (50%) percent of the
salary set in Paragraph X.1, and (ii) the Total Profit Bonus shall be combined
with the Bonus based upon the amount of increase, if any, in the Company's
annual Profit over the prior Fiscal Year's Profit ("Profit Increase Bonus") and
the maximum of the Total Profit Bonus and the Profit Increase Bonus shall not
exceed one hundred (100%) of the Salary set in Paragraph X.1."
<PAGE>
Mr. William W. Steele
October 1, 1996
Page Two
PARAGRAPH X.2.(g) SPECIAL BONUS shall be added as follows:
"(g) Mr. Steele shall be entitled to a further one-time Bonus, based upon
the Company's Profit for Fiscal Years 1995 and 1996; however, such
Bonus shall be earned by and payable to Mr. Steele only if the
Company's EPS for Fiscal Year 1996 equals or exceeds $1.05 per share.
Mr. Steele's Bonus hereunder, if any, shall equal one-half (50%) of
the Bonus which Mr. Steele would have been paid for Fiscal Years 1995
and 1996, but was not, because of the maximum bonus limits imposed
pursuant to Paragraph X.2.(d) (prior to such provision being amended
by this Second Amendment) of this Agreement."
PARAGRAPH X.9 SAN FRANCISCO BAY AREA RESIDENTIAL LOAN shall be added as
follows:
"9. At Mr. Steele's request, the Company shall loan to Mr. Steele up to a
maximum of $250,000 with interest thereon payable at six (6%) percent
per annum. Said loan shall be payable monthly, interest only, with
the entire unpaid principal and unpaid interest fully due and payable
at the earlier of: (a) ten (10) years after the loan is made, or (b)
within six (6) months after the termination of Mr. Steele's full-time
employment with the Company for any reason whatsoever. Such loan
shall be secured by a first deed of trust on such real property. Upon
Mr. Steele's written request for such loan, Mr. Steele and the Company
shall execute all promissory notes, deeds of trust and other normal
documents in connection with such loan which documents shall contain
terms and conditions as are usually and commonly employed by Bank of
America in making residential loans in the San Francisco Bay Area."
In all other respects the Agreement, as previously amended, will remain
unchanged.
Please sign all three (3) originals of this letter and return two (2) of them to
me.
Sincerely,
Harry H. Kahn
HHK/dbw
I agree to the foregoing:
________________________
William W. Steele
<PAGE>
EXHIBIT 10.38
October 14, 1996
Mr. Sydney J. Rosenberg
ABM Industries Incorporated
9831 West Pico Boulevard
Los Angeles, CA 90035
RE: SECOND AMENDMENT OF CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT
Dear Sydney:
As you are aware, your employment agreement ("Agreement") currently in effect
(previously amended effective November 1, 1994) is hereby modified in accordance
with the recommendations of the Board of Directors' Officer Compensation & Stock
Option Committee. This shall constitute the Second Amendment of the Agreement
which shall be effective November 1, 1996, as follows:
PARAGRAPH X.2.(c) BONUS shall be amended in its entirety to read: "Subject to
proration in the event of modification or termination of employment hereunder
(and further subject to the provisions of Paragraph X.2.(f) per the 11/1/94
amendment of Agreement), Mr. Rosenberg's Bonus calculation shall be in two
parts: (i) the maximum Bonus for each Fiscal Year of the Company based upon the
total profit of the Company ("Total Profit Bonus") shall be fifty (50%) percent
of the salary set in Paragraph X.1, and (ii) the Total Profit Bonus shall be
combined with the Bonus based upon the amount of increase, if any, in the
Company's annual Profit over the prior Fiscal Year's Profit ("Profit Increase
Bonus") and the maximum of the Total Profit Bonus and the Profit Increase Bonus
shall not exceed one hundred (100%) of the Salary set in Paragraph X.1."
PARAGRAPH X.2.(f) SPECIAL BONUS shall be added as follows:
"(f) Mr. Rosenberg shall be entitled to a further one-time Bonus, based
upon the Company's Profit for Fiscal Years 1995 and 1996; however,
such Bonus shall be earned by and payable to Mr. Rosenberg only if the
Company's EPS for Fiscal Year 1996 equals or exceeds $1.05 per share.
Mr. Rosenberg's Bonus hereunder, if any, shall equal one-half (50%) of
the Bonus which Mr. Rosenberg would have been paid for Fiscal Years
1995 and 1996, but was not, because of the maximum bonus limits
imposed pursuant to Paragraph X.2.(c) (prior to such provision being
amended by this Second Amendment) of this Agreement."
<PAGE>
October 14, 1996
Page Two
PARAGRAPH X.2.(f) BONUS (per the 11/1/94 Amendment of this Agreement) shall be
re-numbered as Paragraph X.2.(g).
In all other respects the Agreement, as previously amended, will remain
unchanged.
Please sign all three (3) originals of this letter and return two (2) of them to
me.
Sincerely,
William W. Steele
WWS/dbw
I agree to the foregoing:
________________________ Date: ____________________
Sydney J. Rosenberg
<PAGE>
EXHIBIT 10.39
October 14, 1996
Mr. Martinn H. Mandles
ABM Industries Incorporated
9831 West Pico Boulevard
Los Angeles, CA 90035
RE: THIRD AMENDMENT OF CORPORATE EXECUTIVE EMPLOYMENT AGREEMENT
Dear Martinn:
As you are aware, your employment agreement ("Agreement") currently in effect
(previously amended effective November 1, 1994) is hereby modified in accordance
with the recommendations of the Board of Directors' Officer Compensation & Stock
Option Committee. This shall constitute the Third Amendment of the Agreement
which shall be effective November 1, 1996, as follows:
PARAGRAPH X.1(a) SALARY shall be amended in its entirety to read:
"(a) Two Hundred Seventy Five Thousand Dollars ($275,000) from 11/1/96
through 10/31/97."
PARAGRAPH X.2.(c) BONUS shall be amended in its entirety to read: "Subject to
proration in the event of modification or termination of employment hereunder
(and further subject to the provisions of Paragraph X.2.(f) per the 11/1/94
Second Amendment of Agreement), Mr. Mandles' Bonus calculation shall be in two
parts: (i) the maximum Bonus for each Fiscal Year of the Company based upon the
total profit of the Company ("Total Profit Bonus") shall be fifty (50%) percent
of the salary set in Paragraph X.1, and (ii) the Total Profit Bonus shall be
combined with the Bonus based upon the amount of increase, if any, in the
Company's annual Profit over the prior Fiscal Year's Profit ("Profit Increase
Bonus") and the maximum of the Total Profit Bonus and the Profit Increase Bonus
shall not exceed one hundred (100%) of the Salary set in Paragraph X.1."
PARAGRAPH X.2.(f) SPECIAL BONUS shall be added as follows:
"(f) Mr. Mandles shall be entitled to a further one-time Bonus, based upon
the Company's Profit for Fiscal Years 1995 and 1996; however, such
Bonus shall be earned by and payable to Mr. Mandles only if the
Company's EPS for Fiscal Year 1996 equals or exceeds $1.05 per share.
Mr. Mandles' Bonus hereunder, if any, shall equal one-half (50%) of
the Bonus which Mr. Mandles would have been paid for Fiscal Years 1995
and 1996, but was
<PAGE>
October 14, 1996
Page Two
not, because of the maximum bonus limits imposed pursuant to Paragraph
X.2.(c) (prior to such provision being amended by this Third
Amendment) of this Agreement."
PARAGRAPH X.2.(f) BONUS (per the 11/1/94 Second Amendment of this Agreement)
shall be re-numbered as Paragraph X.2.(g).
In all other respects the Agreement, as previously amended, will remain
unchanged.
Please sign all three (3) originals of this letter and return two (2) of them to
me.
Sincerely,
William W. Steele
WWS/dbw
I agree to the foregoing:
________________________ Date: ____________________
Martinn H. Mandles
<PAGE>
EXHIBIT 22.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT
as of 12/31/96
Percentage
of Voting
Securities
Owned by
State of Immediate
Name Incorporation Parent
- ---- ------------- -----------
<S> <C> <C>
ABM Industries Incorporated Delaware Registrant
(*) ABM Janitorial Services - Northern California California 100%
ABM Janitorial Services Co. Ltd. British Columbia 100%
Supreme Building Maintenance Ltd. British Columbia 100%
ABM Engineering Services Company California 100%
ABM Facility Services Company California 100%
American Building Maintenance Co. of Georgia California 100%
American Building Maintenance Co. of Illinois California 100%
American Building Maintenance Co. of New York California 100%
American Building Maintenance Co. - West California 100%
American Plant Protection, Inc. California 100%
American Security and Investigative Services, Inc. California 100%
ABMI Investigative Services+ California 100%
ABMI Security Services, Inc. California 100%
American Commercial Security Services, Inc. California 100%
Ampco System Parking California 100%
Amtech Lighting of the Northeast. California 100%
Amtech Energy Services California 100%
Amtech Lighting Services California 100%
Amtech Elevator Services California 100%
Beehive Parking, Inc. Utah 100%
Bonded Maintenance Company Texas 100%
Bradford Building Services, Inc. California 100%
CommAir Mechanical Services California 100%
Commercial Property Services, Inc. California 100%
Easterday Janitorial Supply Company California 100%
Servall Services Inc. Texas 100%
System Parking, Inc. California 100%
ABMI Security Services of Texas, Inc.+ Texas 100%
American Building Service Company+ California 100%
American Building Maintenance Co. of Utah+ California 100%
American Building Maintenance Co. of Nebraska+ California 100%
American Building Maintenance Co. of Canada Ltd.+ Canada 100%
ABM Janitorial Services - Southern California+ California 100%
Amtech Reliable Elevator Company of Texas+ Texas 100%
American Public Services+ California 100%
Commercial Air Conditioning of Northern
California, Inc.+ California 100%
California Janitorial and Supply Co.+ California 100%
Southern California Building Services+ California 100%
Accurate Janitor Service, Inc.+ California 100%
Towel and Linen Service, Inc.+ California 100%
</TABLE>
(*) Subsidiary relationship to registrant or to subsidiary parents shown by
progressive indentation.
+ Inactive companies.
<PAGE>
[Letterhead]
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the stockholders and Board of Directors
ABM Industries Incorporated
We consent to incorporation by reference in the following Registration
Statements on Form S-8 of ABM Industries Incorporated of our report dated
December 16, 1996, related to the consolidated balance sheets of ABM Industries
Incorporated and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended October 31, 1996, and the related
schedule, which report appears in the October 31, 1996, annual report on Form
10-K of ABM Industries Incorporated.
Registration No. Form Plan
---------------- ---- ---------------------------------
2-86666 S-8 Executive Stock Option Plan
2-96416 S-8 1985 Employee Stock Purchase Plan
33-14269 S-8 1987 Stock Option Plan
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,567
<SECURITIES> 0
<RECEIVABLES> 183,716
<ALLOWANCES> 4,442
<INVENTORY> 15,492
<CURRENT-ASSETS> 233,755
<PP&E> 62,601
<DEPRECIATION> 40,031
<TOTAL-ASSETS> 379,770
<CURRENT-LIABILITIES> 113,798
<BONDS> 0
0
6,400
<COMMON> 195
<OTHER-SE> 164,098
<TOTAL-LIABILITY-AND-EQUITY> 379,770
<SALES> 1,086,925
<TOTAL-REVENUES> 1,086,925
<CGS> 940,296
<TOTAL-COSTS> 940,296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,039
<INTEREST-EXPENSE> 3,631
<INCOME-PRETAX> 38,105
<INCOME-TAX> 16,385
<INCOME-CONTINUING> 21,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,720
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
