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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file Number 1-8929
ABM INDUSTRIES INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
160 PACIFIC AVENUE, SUITE 222, SAN FRANCISCO, CALIFORNIA 94111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415/733-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding as of
September 5, 2000: 22,822,918.
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ABM INDUSTRIES INCORPORATED
FORM 10-Q
FOR THE THREE MONTHS AND NINE MONTHS ENDED JULY 31, 2000
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION PAGE
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Item 1 Condensed Consolidated Financial Statements...................... 2
Notes to the Condensed Consolidated
Financial Statements......................................... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................10
Item 3 Qualitative and Quantitative Disclosures
About Market Risk..............................................19
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.................................19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
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OCTOBER 31, JULY 31,
1999 2000
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<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,139 $ 2,177
Accounts receivable, net 297,596 326,328
Inventories 23,296 24,570
Deferred income taxes 14,163 16,025
Prepaid expenses and other current assets 30,395 33,619
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Total current assets 367,589 402,719
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INVESTMENTS AND LONG-TERM RECEIVABLES 14,290 15,876
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 4,526 4,414
Transportation equipment 13,104 13,006
Machinery and other equipment 61,390 68,994
Leasehold improvements 14,425 14,682
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93,445 101,096
Less accumulated depreciation and
amortization 58,264 62,629
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Property, plant and equipment, net 35,181 38,467
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INTANGIBLE ASSETS - NET 105,583 110,512
DEFERRED INCOME TAXES 30,388 31,961
OTHER ASSETS 10,353 8,686
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Total assets $563,384 $608,221
================================================================================
</TABLE>
(Continued)
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
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OCTOBER 31, JULY 31,
1999 2000
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long-term debt $ 898 $ 902
Bank overdraft 4,967 1,496
Trade accounts payable 45,596 45,776
Income taxes payable 7,318 7,351
Accrued Liabilities:
Compensation 45,170 48,627
Taxes - other than income 16,505 17,132
Insurance claims 35,139 36,973
Other 27,717 28,423
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Total current liabilities 183,310 186,680
Long-Term Debt (less current portion) 28,903 41,797
Retirement plans 19,294 21,639
Insurance claims 48,526 51,102
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Total liabilities 280,033 301,218
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SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000 _ _
shares authorized; none issued
Common stock, $.01 par value, 100,000,000
shares authorized; 22,407,000 and
22,739,000 shares issued and outstanding
at October 31, 1999 and July 31, 2000,
respectively 224 227
Additional capital 93,336 97,955
Accumulated other comprehensive income (635) (603)
Retained earnings 184,026 203,024
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Total stockholders' equity 276,951 300,602
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$ 563,384 $ 608,221
================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
<TABLE>
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THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1999 2000 1999 2000
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<S> <C> <C> <C> <C>
REVENUES AND OTHER INCOME $ 412,689 $ 461,890 $1,202,811 $1,330,459
EXPENSES:
Operating Expenses and
Cost of Goods Sold 356,105 401,754 1,045,844 1,160,756
Selling, General and
Administrative 37,214 38,438 110,585 117,491
Interest 507 956 1,527 2,459
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Total Expenses 393,826 441,148 1,157,956 1,280,706
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INCOME BEFORE INCOME TAXES 18,863 20,742 44,855 49,753
INCOME TAXES 7,734 8,297 18,391 19,901
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NET INCOME $ 11,129 $ 12,445 $ 26,464 $ 29,852
====================================================================================================================
NET INCOME PER COMMON SHARE
Basic $ 0.50 $ 0.54 $ 1.19 $ 1.31
Diluted $ 0.46 $ 0.52 $ 1.10 $ 1.25
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 22,183 22,623 21,954 22,442
Diluted 23,866 23,832 23,767 23,567
DIVIDENDS PER COMMON SHARE $ 0.14 $ 0.155 $ 0.42 $ 0.465
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 2000
(In thousands)
<TABLE>
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1999 2000
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,177,450 $ 1,299,038
Other operating cash receipts 1,434 1,713
Interest received 679 325
Cash paid to suppliers and employees (1,135,197) (1,251,583)
Interest paid (1,695) (2,438)
Income taxes paid (21,551) (23,303)
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Net cash provided by operating activities 21,120 23,752
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (14,184) (12,986)
Proceeds from sale of assets 776 920
Increase in investments and
long-term receivable (1,626) (1,586)
Intangible assets acquired (8,860) (11,675)
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Net cash used in investing activities (23,894) (25,327)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, including tax benefit 11,686 11,431
Common stock repurchased - (8,390)
Dividends paid (9,720) (10,855)
Increase (decrease) in cash overdraft 9,777 (3,471)
Increase in notes payable 25 -
Long-term borrowings 39,037 106,000
Repayments of long-term borrowings (47,827) (93,102)
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Net cash provided by financing activities 2,978 1,613
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NET INCREASE IN CASH AND CASH EQUIVALENTS 204 38
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,844 2,139
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 2,048 $ 2,177
========================================================================================
</TABLE>
(Continued)
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 2000
(In thousands)
<TABLE>
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1999 2000
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<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 26,464 $ 29,852
Adjustments:
Depreciation 8,039 8,942
Amortization 7,282 8,327
Provision for bad debts 1,772 2,202
Gain on sale of assets (60) (162)
Increase in deferred income taxes (6,035) (3,435)
Increase in accounts receivable (24,941) (30,933)
Decrease (increase) in inventories 582 (1,274)
Increase in prepaid expenses and
other current assets (2,120) (3,224)
(Increase) decrease in other assets (1,959) 1,667
Increase in income taxes payable 2,875 33
Increase in retirement plans accrual 2,571 2,345
Increase in insurance claims liability 1,192 4,410
Increase in trade accounts payable and
other accrued liabilities 5,458 5,002
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Total adjustments to net income (5,344) (6,100)
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NET CASH PROVIDED BY OPERATING ACTIVITIES $ 21,120 $ 23,752
===================================================================================
SUPPLEMENTAL DATA:
Non=cash investing activities:
Common stock issued for net assets of
business acquired $ 1,710 $ 1,581
===================================================================================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all material adjustments which are
necessary to present fairly ABM Industries Incorporated (the Company) financial
position as of July 31, 2000, and the results of operations and cash flows for
the nine months then ended. These adjustments are of a normal, recurring nature.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form 10-K filed for the fiscal year ended October 31,
1999 with the Securities and Exchange Commission.
2. NET INCOME PER COMMON SHARE
The Company has reported its earnings in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share. Basic net income per
common share, after the reduction for preferred stock dividends, is based on the
weighted average number of shares actually outstanding during the period.
Diluted net income per common share, after the reduction for preferred stock
dividends, is based on the weighted average number of shares outstanding during
the period, including dilutive securities equivalents.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1999 2000
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Net Income $ 11,129,000 $ 12,445,000
Preferred Stock Dividends (128,000) (128,000)
------------ ------------
$ 11,001,000 $ 12,317,000
============ ============
Common shares outstanding - basic 22,183,000 22,623,000
Effect of dilutive securities:
Stock options 1,546,000 1,086,000
Other 137,000 123,000
------------ ------------
Common shares outstanding - diluted 23,866,000 23,832,000
============ ============
</TABLE>
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<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
1999 2000
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<S> <C> <C>
Net Income $ 26,464,000 $ 29,852,000
Preferred Stock Dividends (384,000) (384,000)
------------ ------------
$ 26,080,000 $ 29,468,000
============ ============
Common shares outstanding - basic 21,954,000 22,442,000
Effect of dilutive securities:
Stock options 1,718,000 1,002,000
Other 95,000 123,000
------------ ------------
Common shares outstanding - diluted 23,767,000 23,567,000
============ ============
</TABLE>
For purposes of computing diluted net income per common share, weighted
average common share equivalents do not include stock options with an exercise
price that exceeds the average fair market value of the Company's common stock
for the period. For the nine months ended July 31, 2000, options to purchase
approximately 1,197,000 shares of common stock at an average price of $31.22
were excluded from the computation. For the nine months ended July 31, 1999,
options to purchase approximately 1,100,000 shares of common stock at an average
price of $31.80 were excluded from the computation.
3. COMPREHENSIVE INCOME
Other comprehensive income at October 31, 1999 and July 31, 2000
consists of foreign currency translation adjustments. Comprehensive income for
the three and nine month periods ended July 31, 2000 approximated net income.
4. ACQUISITIONS
The Company acquired the operations and selected assets of six
businesses during the nine months ended July 31, 2000. These business
combinations were accounted for under the purchase method of accounting. The
aggregate consideration paid for these acquisitions was $6,941,000. The
aggregate purchase price does not include payments of contingent consideration
based upon the future results of operations of the businesses acquired. As these
acquisitions were not significant, pro forma information is not included in
these financial statements.
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5. SEGMENT INFORMATION
The Company's operations are grouped into nine industry segments or
divisions as defined under Statement of Financial Accounting Standards (SFAS)
No. 131. The results of operations from the Company's five operating divisions
that are reportable under SFAS 131 for the three months and nine months ended
July 31, 2000, as compared to the three months and nine months ended July 31,
1999, are more fully described below. Included in all other divisions are ABM
Facility Services, American Commercial Security, CommAir Mechanical Services,
and Easterday Janitorial Supply Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1999 2000
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(in thousands)
<S> <C> <C>
Revenues:
ABM Janitorial Services $ 233,446 $ 268,842
Ampco System Parking 41,476 44,917
ABM Engineering Services 39,084 38,735
Amtech Lighting Services 24,350 29,916
Amtech Elevator Services 24,964 29,124
All Other Divisions 49,187 50,321
Corporate 182 35
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Total Revenues $ 412,689 $ 461,890
========= =========
Operating Profit:
ABM Janitorial Services $ 13,535 $ 14,892
Ampco System Parking 2,299 2,588
ABM Engineering Services 2,208 2,008
Amtech Lighting Services 2,042 2,632
Amtech Elevator Services 1,893 1,742
All Other Divisions 2,022 2,071
Corporate (4,629) (4,235)
--------- ---------
Total Operating Profit $ 19,370 $ 21,698
========= =========
</TABLE>
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<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY 31,
1999 2000
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<S> <C> <C>
(in thousands)
Revenues:
ABM Janitorial Services $ 688,517 $ 776,107
Ampco System Parking 121,269 126,991
ABM Engineering Services 114,900 115,593
Amtech Lighting Services 70,123 86,219
Amtech Elevator Services 69,436 82,566
All Other Divisions 137,863 142,792
Corporate 703 191
----------- -----------
Total Revenues $ 1,202,811 $ 1,330,459
=========== ===========
Operating Profit:
ABM Janitorial Services $ 34,342 $ 38,956
Ampco System Parking 5,803 6,492
ABM Engineering Services 6,036 5,683
Amtech Lighting Services 5,192 6,436
Amtech Elevator Services 4,477 4,528
All Other Divisions 4,881 4,325
Corporate (14,349) (14,208)
----------- -----------
Total Operating Profit $ 46,382 $ 52,212
=========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically
been the sources for meeting working capital requirements, financing capital
expenditures, acquisitions and paying cash dividends, as well as funding the
Company's recent stock repurchase program. 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 that provides a $150 million line of credit expiring July 1, 2002.
At the Company's option, the credit facility provides interest at the prime rate
or IBOR+.35%. As of July 31, 2000, the total amount outstanding was
approximately $111 million, which was comprised of loans in the amount of $40
million and standby letters of credit of $71 million. This agreement requires
the Company to meet certain financial ratios, places some limitations on outside
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borrowing and prohibits declaring or paying cash dividends exceeding 50% of the
Company's net income for any fiscal year. In addition, the Company has a loan
agreement with a major U.S. bank with a balance of $2.6 million at July 31,
2000. This loan bears interest at a fixed rate of 6.78% with annual payments of
principal, in varying amounts, and interest due each February 15 through 2003.
The Company's effective interest rate for all long-term debt borrowings for the
nine months ended July 31, 2000 was 7.74%.
At July 31, 2000, working capital was $216.0 million, as compared to
$184.3 million at October 31, 1999.
During the nine months ended July 31, 2000, net cash provided by
operating activities amounted to $23.8 million, compared to $21.1 million in the
same period of 1999.
Net cash used in investing activities of $25.3 million in the nine
months ended July 31, 2000, was slightly greater than the $23.9 million used in
the same period of the prior year.
Net cash provided by financing activities amounted to $1.6 million for
the first nine months of 2000, compared to $3.0 million in the first nine months
of the prior year.
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, cash flows or its results of operations.
The Company is currently involved in four proceedings relating to
environmental matters: one involving alleged potential soil and groundwater
contamination at a Company facility in Florida; one involving alleged potential
soil contamination at a former Company facility in Arizona; one involving
alleged potential soil and groundwater contamination of a parking garage
previously operated by the Company in
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Washington; and, one involving alleged potential soil and groundwater
contamination at a former dry-cleaning facility leased by the Company in Nevada.
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 effect on the Company's financial position, cash flows, or its results
of operations.
ACQUISITIONS
The operating results of businesses acquired during the nine months
ended July 31, 2000, have been included in the accompanying condensed
consolidated financial statements from their respective dates of acquisition.
Effective November 1, 1999, the Company acquired the operations and
selected assets of NPS Corporation, a janitorial services company, with
customers located in Anchorage, Fairbanks and Juneau, Alaska. The terms included
a cash downpayment made at closing plus annual contingent payments based on
operating profits to be made over five years.
Effective December 1, 1999, the Company acquired the operations and
selected assets of Centre City Parking with customers located in Miami, Florida.
The terms included a cash downpayment made at closing plus annual contingent
payments based on operating profits to be made over five years.
Effective January 1, 2000, the Company acquired the operations and
selected assets of United Building Services, a janitorial services company, with
customers located in Long Beach, California. The terms included a cash
downpayment made at closing plus a final payment based on operating profits to
be made after one year.
Effective January 1, 2000, the Company acquired the operations and
selected assets of Dixie Lighting & Electrical, Inc., with customers located in
the greater Southeastern United States from Louisiana to Florida. The terms
included a cash downpayment made at closing plus annual contingent payments
based on operating profits to be made over five years.
Effective March 1, 2000, the Company acquired all issued and outstanding
stock of Allied Maintenance Services, Inc., a provider of janitorial,
landscaping, parking, parking lot re- sealing and paint-stripping, engineering
and related services, with customers located in Hawaii. The terms included a
cash
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downpayment made at closing plus annual contingent payments based on operating
profits to be made over five years.
Effective July 1, 2000, the Company acquired the operations and selected
assets of Silver Cloud & Associates, a parking company with customers located in
the Seattle, Washington area. The terms included a cash downpayment made at
closing plus annual contingent payments based on operating profits to be made
over five years.
The aggregate consideration paid for these acquisitions was $6,941,000.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements of the Company. All information in
the discussion and references to the years and quarters are based on the
Company's fiscal year and third quarter which end on October 31 and July 31,
respectively.
THREE MONTHS ENDED JULY 31, 2000 VS. THREE MONTHS ENDED JULY 31, 1999
Revenues and other income (hereafter called revenues) increased 12% for
the third quarter of 2000 to $462 million compared to $413 million for the third
quarter of 1999. Higher Janitorial Division revenues contributed nearly $35
million or 71% of the increase. For the quarter ended July 31, 2000, revenues
relating to acquisitions made during fiscal 1999 were approximately $7 million,
or approximately 14% of the total revenue increase of $49 million.
As a percentage of revenues, operating expenses and cost of goods sold
were 87.0% for the third quarter of 2000, compared to 86.3% for the third
quarter of 1999. Consequently, as a percentage of revenues, the Company's gross
profit (revenue minus operating expenses and cost of goods sold) of 13.0% in the
third quarter of 2000 was lower than the gross profit of 13.7% for the third
quarter of 1999. The decrease in the gross profit margin was due primarily to
slightly higher labor and insurance costs in the third quarter of 2000. The 2000
quarter had one additional workday for which the Company had to pay its hourly
workers. Although the Company attempts to increase prices, where possible, to
offset its rising labor costs, several of the Company's segments are still
experiencing competitive pressures that either
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reduced their prices or prevented increases, which decreased their respective
profit margins.
Selling, general and administrative expenses for the third quarter of
2000 were $38.4 million compared to $37.2 million for the corresponding three
months of 1999. The $1.2 million increase in selling, general and administrative
expenses for the three months ended July 31, 2000, compared to the same period
in 1999, is primarily due to increased labor costs, amortization of goodwill,
and costs associated with the implementation of a new accounting system. These
cost increases were somewhat offset by decreased profit sharing expense. As a
percentage of revenues, selling, general and administrative expenses decreased
slightly to 8.3% for the three months ended July 31, 2000, from 9.0% for the
same period in 1999.
Interest expense was $956,000 for the third quarter of 2000 compared to
$507,000 for the same period in 1999, an increase of $449,000. This increase was
primarily due to higher weighted average interest rates and borrowings during
the third quarter of 2000.
The pre-tax income for the third quarter of 2000 was $20.7 million
compared to $18.9 million in the same quarter of 1999, an increase of 10%.
The estimated effective income tax rate for the third quarter of 2000
was 40% compared to 41% for the third quarter of 1999. The lower tax rate was
mostly due to an increase in estimated federal tax credits and slightly lower
effective state income tax rates.
Net income for the third quarter of 2000 was $12.4 million, an increase
of 12% from the net income of $11.1 million for the third quarter of 1999.
Diluted net income per common share rose 13% to 52 cents for the third quarter
of 2000 compared to 46 cents for the same period in 1999.
SEGMENT INFORMATION
Revenues for ABM Janitorial Services (also known as American Building
Maintenance) increased by 15.2% during the third quarter of 2000 as compared to
the same quarter of 1999 as a result of increased business nationwide and
several acquisitions during 1999 and the first half of 2000. This Division's
operating profits increased 10.0% during the third quarter when compared to the
same period last year. The increase in operating profits is lower than the
increase in revenues primarily because of
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increased labor and insurance costs. The current quarter had one additional
workday compared to the third quarter of 1999. Management estimates that one day
of labor expense on this Division's fixed price contracts is in excess of $1
million.
Ampco System Parking (also known as Ampco System Airport Parking and
Ampco Express Airport Parking) revenues increased by 8.3% while its operating
profits increased 12.5% during the third quarter of 2000 compared to the third
quarter of 1999. The increase in revenues was primarily due to newly acquired
parking contracts in California and small acquisitions in Florida, Texas and
Washington along with revenue growth of its off-airport parking operations. The
increase in operating profits resulted from new business, as well as lower
expenses from existing contracts.
ABM Engineering Services' revenues decreased slightly by 0.9% while its
operating profits decreased 9.1% for the third quarter of 2000 compared to the
same period in 1999. The slightly lower revenues reflect strong competition,
which held down price increases, as well as a loss of work during 2000 in the
Northeast and Midwest regions. The decrease in operating profits is due to the
loss of work and increased general and administrative labor and computer-related
costs.
Amtech Lighting Services (also known as Sica Lighting & Electrical
Services in the Northeast) reported a 22.9% revenue increase and a 28.9%
operating profits increase during the third quarter of 2000 compared to the same
quarter of the prior year. The increase in revenues was primarily due to
obtaining a significant contract in New York City, which started November 1,
1999, increased business in both its Florida and Texas regions, and acquisitions
in Minnesota on July 1, 1999 and Alabama on January 1, 2000. Profit margins on
revenues increased slightly between quarters due to a reduction in labor and
material costs as a percentage of sales.
Revenues for Amtech Elevator Services increased by 16.7% in the third
quarter of 2000 compared to the same period in 1999 primarily due to new work
secured in Atlanta, Chicago and Denver. The Division reported an 8.0% decrease
in operating profit for the third quarter compared to the corresponding quarter
of 1999. This decrease in operating profits can be attributed primarily to
higher operating expenses including insurance and computer-related expenses.
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NINE MONTHS ENDED JULY 31, 2000 VS. NINE MONTHS ENDED JULY 31, 1999
Revenues for the first nine months of 2000 were $1,330 million compared
to $1,203 million for the first nine months of 1999, an 11% increase over the
same period of the prior year. Higher Janitorial revenues contributed $87
million or 69% of this $127 million increase. For the nine months ended July 31,
2000, revenues relating to acquisitions made during fiscal 1999 were
approximately $21 million or 17% of the total revenue increase of $127 million.
As a percentage of revenues, operating expenses and cost of goods sold
were 87.2% for the first nine months of 2000, compared to 86.9% for the first
nine months of 1999. Consequently, as a percentage of revenues, the Company's
gross profit of 12.8% in the first nine months of 2000 was slightly lower than
the gross profit of 13.1% for the first nine months of 1999. The gross profit
percentage declined mostly due to higher labor and related costs as well as
competitive pressure to maintain price levels. The Company will continue to
pursue price increases from its customers to help offset its rising costs.
Selling, general and administrative expenses for the first nine months
of 2000 were $117.5 million compared to $110.6 million for the corresponding
nine months of 1999. As a percentage of revenues, selling, general and
administrative expenses decreased slightly, from 9.2% for the nine months ended
July 31, 1999, to 8.8% for the same period in 2000, primarily due to costs that
do not increase at the same rate as sales. The $6.9 million increase in the
dollar amount of selling, general and administrative expenses for the nine
months ended July 31, 2000, compared to the same period in 1999, is primarily
due to expenses related to growth including amortization of goodwill and, to a
somewhat lesser extent, expenses associated with the implementation of a new
accounting system.
Interest expense was $2.5 million for the first nine months of 2000
compared to $1.5 million for the same period in 1999, an increase of $1 million.
This increase was primarily due to higher weighted average borrowings and
interest rates during the first nine months of 2000.
The pre-tax income for the first nine months of 2000 was $50 million
compared to $45 million, an increase of 11% over the same period in 1999. The
growth on a percentage basis in pre-tax income is equal to the revenue growth
for the first nine months of 2000 because of lower selling, general and
administrative
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expenses as a percentage of revenues offset by higher operating expenses and
cost of goods sold as a percentage of revenues.
The estimated effective income tax rate for the first nine months of
2000 was 40%, compared to 41% in the first nine months of 1999. The lower tax
rate was due for the most part to an increase in the estimated federal tax
credits and slightly lower effective state income tax rates.
As a result, net income for the first nine months of 2000 was $29.9
million, an increase of 13%, from the net income of $26.5 million for the same
period of 1999. Diluted net income per common share rose 14% to $1.25 for the
first nine months of 2000, compared to $1.10 for the same period in 1999.
SEGMENT INFORMATION
Revenues for ABM Janitorial Services increased by 12.7% during the first
nine months of 2000 as compared to the same period of 1999 as a result of
increased business nationwide but particularly in the Mid-Atlantic, Northwest
and Southeast regions and a number of acquisitions during 1999 and first half of
2000. This Division's operating profits increased 13.4% when compared to the
same period in 1999. The increase in operating profits is principally due to
increased revenues. Operating profits increased at a higher rate than revenues
due primarily to lower selling, general and administrative expenses as a
percentage of revenues.
Ampco System Parking's revenues increased by 4.7%, while its operating
profits increased 11.9% during the first nine months of 2000 compared to the
first nine months of 1999. The increase in revenues was primarily due to newly
acquired parking contracts in California and small acquisitions in Florida,
Texas and Washington along with revenue growth of its off-airport parking
operations. The increase in operating profits resulted largely from the growth
in the number of locations under contract and lower costs in this division's
California and Northeast regions.
ABM Engineering Services' revenues increased by 0.6%, while its
operating profits decreased 5.8% for the first nine months of 2000 compared to
the same period in 1999. The small revenue increase was due primarily to strong
competition, which held down price increases, and a loss of work during 2000 in
the Midwest, Northeast and Arizona. The decrease in operating profits is due to
increased general and administrative expense.
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Amtech Lighting Services reported a 23% revenue increase, and a 24%
operating profits increased during the first nine months of 2000 compared to the
same nine months of the prior year. The increase in revenues and operating
profits was primarily due to obtaining a significant contract in New York City,
which started November 1, 1999, increased business in both its Florida and Texas
regions, and acquisitions in Minnesota on July 1, 1999 and Alabama on January 1,
2000.
Revenues for Amtech Elevator Services increased by 18.9% in the first
nine months of 2000 compared to the same period in 1999 primarily due to new
work secured in Atlanta, Chicago and Denver. The Division reported a 1.1%
increase in operating profit for the first nine months compared to the
corresponding nine months of 1999. This proportionally smaller increase in
operating profits can be attributed primarily to higher labor and material costs
as well as insurance and computer related expenses.
SAFE HARBOR STATEMENT
Cautionary Safe Harbor Disclosure for Forward Looking Statements under
the Private Securities Litigation Reform Act of 1995: Because of the factors set
forth below, as well as other variables affecting the Company's operating
results, past financial performance, should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. The statements contained
herein which are not historical facts are forward-looking statements that are
subject to meaningful risks and uncertainties, including but not limited to: (1)
significant decreases in commercial real estate occupancy, resulting in reduced
demand and prices for building maintenance and other facility services in the
Company's major markets, (2) loss or bankruptcy of one or more of the Company's
major customers, which could adversely affect the Company's ability to collect
its accounts receivable or recover its deferred costs, (3) major collective
bargaining issues that may cause loss of revenues or cost increases that
non-union companies can use to their advantage in gaining market share, (4)
significant shortfalls in adding additional customers in existing and new
territories and markets, (5) a protracted slowdown in the Company's acquisition
program, (6) legislation or other governmental action that severely impacts one
or more of the Company's lines of business, such as price controls that could
restrict price increases, or the unrecovered cost of any universal employer-paid
health insurance, as well as government investigations that adversely affect the
Company, (7) reduction or revocation of the Company's line of credit, which
would
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increase interest expense or the cost of capital, (8) cancellation or nonrenewal
of the Company's primary insurance policies, as many customers contract out
services based on the contractor's ability to provide adequate insurance
coverage and limits, (9) catastrophic uninsured or underinsured claims against
the Company, the inability of the Company's insurance carriers to pay otherwise
insured claims, or inadequacy in the Company's reserve for self-insured claims,
(10) inability to employ entry level personnel due to labor shortages, (11)
resignation, termination, death or disability of one or more of the Company's
key executives, which could adversely affect customer retention and day-to-day
management of the Company, and (12) other material factors that are disclosed
from time to time in the Company's public filings with the United States
Securities and Exchange Commission, such as reports on Forms 8-K, 10-K and 10-Q.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, as such, are not subject to
material foreign currency exchange rate risk. Although the Company has
outstanding debt and related interest expense, market risk in interest rate
exposure in the United States is currently not material.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.2 - Bylaws, as amended June 20, 2000
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended July 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABM Industries Incorporated
September 13, 2000 /s/ David H. Hebble
------------------ ------------------------------------
Senior Vice President and
Chief Financial Officer,
Principal Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
Exhibit 3.2 Bylaws, as amended June 20, 2000
Exhibit 27.1 Financial Data Schedule
</TABLE>
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