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<SEC-DOCUMENT>0000912057-96-000901.txt : 19960129
<SEC-HEADER>0000912057-96-000901.hdr.sgml : 19960129
ACCESSION NUMBER: 0000912057-96-000901
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19951031
FILED AS OF DATE: 19960126
SROS: NYSE
SROS: PSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ABM INDUSTRIES INC /DE/
CENTRAL INDEX KEY: 0000771497
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340]
IRS NUMBER: 941369354
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08929
FILM NUMBER: 96507702
BUSINESS ADDRESS:
STREET 1: 50 FREMONT ST STE 2600
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
BUSINESS PHONE: 4155974500
MAIL ADDRESS:
STREET 1: 50 FREMONT ST
STREET 2: SUITE 2600
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94105
FORMER COMPANY:
FORMER CONFORMED NAME: ABM INDUSTRIES INC
DATE OF NAME CHANGE: 19950110
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN BUILDING MAINTENANCE INDUSTRIES INC
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>10-K405
<TEXT>
<PAGE>
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, 1995
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, 1995, nonaffiliates of the registrant beneficially owned
shares of the registrant's common stock with an aggregate market value of
$197,113,717.
As of December 31, 1995, there were 9,412,719 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 1996 Annual
Meeting of Stockholders is incorporated by reference into Part III of this Form
10-K.
<PAGE>
PART I
ITEM 1. BUSINESS.
ABM Industries Incorporated ("ABM") is the largest American-owned facility
services contractor listed on the New York Stock Exchange. With annual revenues
approaching $1 billion and more than 45,000 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 facilities 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. By vote of the stockholders on March 16,
1994, the Company's name was changed from American Building Maintenance
Industries, Inc. to ABM Industries Incorporated. 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>
ABM Janitorial Services ABM Security Services Amtech Elevator
Easterday Janitorial Supply Ampco System Parking Services
Amtech Engineering
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, 1995, are more
fully described below.
JANITORIAL DIVISIONS
The Janitorial Divisions provide janitorial cleaning services as well as
janitorial supplies and equipment to their customers. Operating from 86 offices
throughout the United States and Canada, this segment accounted for
approximately 57%, 54% and 53% of the Company's revenues in the fiscal years
ended October 31, 1993, 1994 and 1995, respectively.
/ / 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 by ABM Janitorial Services include floor cleaning and
finishing, wall and window washing, furniture polishing, rug cleaning,
dusting, and other building cleaning services. This Division maintains 80
offices in 33 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. Aside from sales to ABM Janitorial Services, which, in 1995,
accounted for approximately 32% of Easterday Janitorial Supply's total
revenues (before intercompany eliminations), 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 manufactures certain
cleaning agents and waxes which it sells, but its manufacturing operations
are not significant in relation to Easterday Janitorial Supply as a whole.
2
<PAGE>
PUBLIC SERVICE DIVISIONS
At October 31, 1995, 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 44 offices which were located
throughout the United States. For the fiscal years ended October 31, 1993, 1994
and 1995, this segment accounted for approximately 16%, 20% and 21%,
respectively, of the Company's revenues.
The two Public Service Divisions are described below:
/ / 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; Kansas City, Missouri; and
the District of Columbia. Much like ABM Janitorial Services, 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 1,425 parking lots and
garages which are either leased from or managed for third parties. Ampco
System Parking currently has parking facilities in 23 states: Arizona,
California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Indiana,
Iowa, Kansas, Michigan, Missouri, Nebraska, New Jersey, New York, Ohio,
Oklahoma, Pennsylvania, Texas, Utah, Washington and Wisconsin.
TECHNICAL DIVISIONS
The Technical Divisions segment provides its customers with a wide range of
elevator, engineering, lighting and mechanical 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.
Installation contracts are either individually negotiated or obtained through
competitive bidding. 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 drug, convenience and discount store chains.
The Technical Divisions operate from 47 offices located in Arizona,
California, Colorado, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland,
Michigan, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Pennsylvania,
Texas, Washington, Washington, D.C., Wisconsin and Mexico. For the fiscal years
ended October 31, 1993, 1994 and 1995, this segment accounted for approximately
27%, 26% and 26%, respectively, of the Company's revenues.
Operations of the four Technical Divisions during fiscal year 1995 are
described below:
/ / AMTECH ELEVATOR SERVICES installs, maintains and repairs elevators
and escalators in major metropolitan areas of California; Houston, Texas;
Detroit, Michigan; Upper Marlboro, Maryland; Las Vegas, Nevada; Pennsauken,
New Jersey; Atlanta, Georgia; Philadelphia, Pennsylvania; Denver, Colorado;
Chicago, Illinois; Cincinnati, Ohio; and Washington, D.C. Amtech Elevator
Services builds elevator units in Rosarito, Mexico, maintains fourteen
offices and several parts warehouses and operates a fleet of radio-equipped
service vehicles.
/ / AMTECH ENGINEERING SERVICES provides building owners and managers
with staffs of 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 and factories. Amtech Engineering Services maintains
five offices, two of which are in California and one each in Chicago,
Illinois; Philadelphia, Pennsylvania; and Phoenix, Arizona.
/ / AMTECH LIGHTING SERVICES provides relamping, fixture cleaning and
periodic maintenance service to its customers. Amtech Lighting Services also
repairs, services, designs and installs outdoor signage. This division
maintains sixteen offices, six of which are located in California; and one
office in each of Austin, Dallas, Houston and San Antonio, Texas; Phoenix,
Arizona; Albuquerque, New Mexico; New Orleans, Louisiana; Atlanta, Georgia;
and Tampa and Ft. Lauderdale, Florida.
/ / COMMAIR MECHANICAL SERVICES installs and services air conditioning,
ventilation and heating equipment and provides energy management
3
<PAGE>
services to commercial, industrial and institutional facilities. CommAir
Mechanical Services maintains eleven offices, ten 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. In
addition, a number of the Company's competitors do not operate under collective
bargaining agreements. Generally, these nonunion competitors are able to operate
with lower labor and employee benefit costs, thus permitting them to more
aggressively compete on the basis of price in geographic areas where the Company
has union operations.
MARKETING AND SALES
The Company's marketing and sales efforts are conducted by its various
divisions and regional offices. Sales, marketing and operations executives in
each of the regional and some of the major branch offices participate directly
in obtaining new customers and also service the existing ones. The broad
geographic base of the Company's division, regional and branch offices enables
the Company to provide a full range of facility services, which are available
individually or as a part of the Company's multi-service marketing program.
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. The Company estimates that no customer accounted for more than 5% of its
revenues during the fiscal year ended October 31, 1995.
EMPLOYEES
The Company employs approximately 45,000 persons, of whom about 3,100 are in
executive, managerial, administrative, professional, sales and clerical
positions. The remaining employees perform air conditioning, elevator,
engineering, janitorial, lighting, parking and security services. Approximately
18,400 employees are covered under collective bargaining agreements.
4
<PAGE>
PRINCIPAL OFFICERS OF THE COMPANY
The principal officers of the Company are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Sydney J. Rosenberg 81 Chairman of the Board; Chief Executive Officer from November 1991
to November 1994
William W. Steele 59 Chief Executive Officer since November 1994; President since
November 1991; Executive Vice President from April 1988 to October
1991
Martinn H. Mandles 55 Executive Vice President since November 1991; Vice President from
October 1972 to November 1991
J. E. Benton, III 55 Senior Vice President, Office of the President, since July 1994;
Vice President of the Company from November 1977 to July 1994
Sherrill F. Sipes, Jr. 60 Senior Vice President, Office of the President, since July 1994;
Vice President from May 1968 to July 1994
William C. Banner 61 Vice President of the Company, and President of the Security
Services Division
Donna M. Dell 47 Vice President and Director of Human Resources since July 1994;
Vice President and Counsel, Wells Fargo Bank, from February 1990
to June 1994
John F. Egan 59 Vice President of the Company, and President of the Janitorial
Services Division
David H. Hebble 60 Vice President and Chief Financial Officer
Harry H. Kahn 52 Vice President, General Counsel and Secretary
Douglas B. Bowlus 51 Treasurer
Hussain A. Khan 59 Controller and Chief Accounting Officer since March 1993;
Controller from March 1983 to March 1993
</TABLE>
5
<PAGE>
ITEM 2. PROPERTIES.
The Company has sales, operations, warehouse and administrative facilities
in over 200 locations throughout the United States, Canada and Mexico. Fifteen
of these facilities are owned by the Company and the remainder are leased. At
October 31, 1995, the real estate owned by the Company had an aggregate net book
value of $4,619,000 and was located in: Phoenix, Arizona; San Francisco,
Los Angeles and Fresno, California; Jacksonville and Tampa, Florida; Portland,
Oregon; Houston and Austin, Texas; Seattle, Spokane and Tacoma, Washington;
Winnipeg, Manitoba, Canada; and Rosarito Beach, Baja, Mexico.
Rental payments under long and short-term lease agreements amounted to
$87,349,000 for the fiscal year ended October 31, 1995. Of this amount,
$50,922,000 in rental expense was attributable to Ampco System Parking Division
for the public parking lots and garages that it manages and operates. The
remaining rent expense was for equipment, vehicles, office and warehouse space.
ITEM 3. LEGAL PROCEEDINGS.
Effective June 30, 1995 and July 20, 1995, respectively, the Company and all
current and former officers and directors of the Company who participated in the
proposed management led buyout of the Company and who were named defendants in
the action entitled ACS FINANCIAL INC. ET AL V AMERICAN BUILDING MAINTENANCE
INDUSTRIES, INC. ET AL and/or related cross actions (all of which action and
cross-actions had been fully and finally settled as among the various parties on
or about October 18, 1994) completed settlements with the Company and its
Directors and Officers Liability Insurance carrier, respectively, for all claims
for indemnification and expense reimbursement under the Company's existing
by-laws, indemnification agreements and insurance policies. These settlements
finally conclude all issues arising out of the above-referenced matters.
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>
- ------------------------------------------------------------------------------------------------------------
1994
Price range of common stock:
High $19 1/4 $19 $23 5/8 $23
Low $16 1/8 $17 1/8 $17 3/4 $19 7/8
Dividends per share $ 0.125 $ 0.13 $ 0.13 $ 0.13 $ 0.515
1995
Price range of common stock:
High $24 1/4 $24 1/8 $25 $27 5/8
Low $20 1/4 $21 1/2 $22 $25 1/8
Dividends per share $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.60
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were approximately 4,100 holders of the Company's
common stock.
6
<PAGE>
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, 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts and ratios) 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Revenues and other income $ 745,721 $ 760,097 $ 773,312 $ 884,633 $ 965,381
- ------------------------------------------------------------------------------------------------------------
Expenses
Operating expenses and cost of goods sold 632,792 643,346 658,503 760,056 830,749
Selling, general and administrative 91,230 94,273 92,403 96,059 99,521
Interest 3,121 2,061 2,164 3,459 3,699
- ------------------------------------------------------------------------------------------------------------
727,143 739,680 753,070 859,574 933,969
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 18,578 20,417 20,242 25,059 31,412
Income taxes 7,478 8,425 7,596 9,890 13,193
- ------------------------------------------------------------------------------------------------------------
Net income $ 11,100 $ 11,992 $ 12,646 $ 15,169 $ 18,219
- ------------------------------------------------------------------------------------------------------------
Net income per common share $ 1.36 $ 1.43 $ 1.45 $ 1.65 $ 1.85
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Common and common equivalent shares 8,146 8,397 8,646 8,908 9,590
FINANCIAL STATISTICS
Dividends per common share $ 0.473 $ 0.49 $ 0.50 $ 0.515 $ 0.60
Stockholders' equity per common share $ 10.53 $ 11.54 $ 12.55 $ 13.74 $ 15.14
Working capital $ 62,905 $ 76,484 $ 76,613 $ 90,165 $ 95,627
Current ratio 1.79 2.00 1.85 1.91 1.84
Long-term debt $ 9,477 $ 15,435 $ 20,937 $ 25,254 $ 22,575
Redeemable cumulative preferred stock $ -- $ -- $ 6,400 $ 6,400 $ 6,400
Stockholders' equity $ 86,938 $ 98,209 $ 110,188 $ 124,331 $ 141,786
Total assets $ 209,036 $ 223,724 $ 268,140 $ 299,470 $ 334,973
Property, plant and equipment -- net $ 15,595 $ 15,009 $ 17,043 $ 19,819 $ 22,647
Capital expenditures $ 5,647 $ 5,225 $ 6,187 $ 8,539 $ 10,225
Depreciation and amortization $ 6,970 $ 6,634 $ 7,158 $ 9,300 $ 11,527
Accounts receivable -- net $ 110,472 $ 120,885 $ 127,908 $ 140,788 $ 158,075
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All share and per share amounts have been restated to retroactively reflect
the two-for-one stock split in 1992.
7
<PAGE>
ITEM 7. 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. Management believes that
funds from these sources will remain available and adequately serve the
Company's liquidity needs. Prior to September 22, 1994, the Company had
short-term and long-term lines of credit totaling $33,000,000. These lines were
canceled as of September 22, 1994, in conjunction with the signing of a new
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. The credit facility provides,
at the Company's option, interest at the prime rate or IBOR+.45%. As of October
31, 1995, the total amount outstanding was approximately $93 million which was
comprised of loans in the amount of $21 million and standby letters of credit of
$72 million. The interest rate at October 31, 1995 was 7.8 %. 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 connection with the acquisition of System Parking on September 1, 1993,
the Company assumed a note payable in the amount of $3,818,000. Interest on this
note is payable at an annual rate of 9.35%, with principal amounts of $636,000
due annually through October 1, 1998. At October 31, 1995, the balance remaining
on this note was $1,909,000.
Operating activities in 1994 generated a cash flow of $21.9 million compared
to $13.8 million in 1995. At October 31, 1994, working capital was $90.2
million, as compared to $95.6 million at October 31, 1995.
Cost of acquisitions during the fiscal years ended October 31, 1993, 1994
and 1995 (hereinafter referred to as 1993, 1994 and 1995, respectively),
including payments pursuant to contractual arrangements involved in prior
acquisitions, were approximately $24.1 million, $7.1 million and $12.5 million,
respectively. Capital expenditures, including assets acquired for cash through
acquisitions, during 1993, 1994, and 1995 were $6.2 million, $8.5 million, and
$10.2 million, respectively. Cash dividends paid to stockholders of common and
redeemable preferred stock were approximately $4.4 million in 1993, $5.1 million
in 1994 and $6.1 million in 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
recover inflationary costs by increasing sales prices to the extent permitted by
contracts and competition.
8
<PAGE>
ENVIRONMENTAL MATTERS
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 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 various stages of environmental
investigation and/or remediation relating to certain current and former Company
facilities. While it is difficult to predict the ultimate outcome of these
investigations, or to assess the likelihood and scope of further investigation
and remediation activities, based on information currently available, management
believes that the costs of these matters are not 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. The following acquisitions made during the fiscal year 1995
accounted for approximately $17.1 million in revenues and had an impact of
approximately $0.08 on earnings per share:
Effective November 1, 1994, the Company's ABM Janitorial Services Division
acquired substantially all of the maintenance services contracts from Quality
Building Maintenance, Inc. of Seattle. This acquisition added approximately $3.4
million in annual revenues during the fiscal year 1995 to the Division's
Northwest Region in Seattle.
The South Central Region of ABM Janitorial Services Division acquired the
janitorial business of Consolidated Chemical of Tyler, Texas on January 1, 1995,
and this acquisition added approximately $800,000 in revenues during the fiscal
year 1995.
As of January 1, 1995, the Company's Ampco System Parking Division acquired
the parking operations of Pansini Corporation. The parking contracts obtained as
a result of this acquisition added approximately 100 facilities in California
and Hawaii and approximately $8.5 million in revenues during the fiscal year
1995.
On July 1, 1995, the Company's ABM Janitorial Services Division acquired the
janitorial operations of United Cleaning Specialists Corp. in Atlanta, Georgia.
For the fiscal year 1995, this acquisition contributed approximately $3.7
million in revenues to the Division's Southeast Region. United Cleaning
Specialists operated in Alabama, Florida, Georgia, North and South Carolina,
Tennessee and Virginia.
On September 1, 1995, the Company's ABM Janitorial Services Division
acquired the janitorial operations of Allied Janitorial Service Company of
Spokane, Washington that operated in Eastern Washington and Idaho. This
acquisition added approximately $700,000 to the revenues of this Division's
Northwest Region for the two months ended October 31, 1995.
RESULTS OF OPERATIONS
COMPARISON OF 1995 TO 1994
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.
The Company reported record revenues and earnings for 1995. Revenues and
other income (hereinafter called "revenues") 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 (revenues minus total
expenses) 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 (revenues minus
operating expenses and cost of goods sold) 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
9
<PAGE>
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 decline as a percentage of revenues reflects 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 is 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.
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 ABM
Janitorial Services and Easterday Janitorial Supply, accounted for approximately
53% of the Company's consolidated revenues for 1995. Revenues of ABM Janitorial
Services 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, ABM Janitorial Services' 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
ABM Security Services ("Security") and Ampco System Parking ("Parking")
Divisions. Security 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
Security Division had to bid for contracts at lower margins in order to be
competitive. The Company's Parking Division revenues increased by 17% while its
profits increased by 50% in 1995 over 1994. The increase in revenues is
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
10
<PAGE>
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 Amtech 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 are 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.
COMPARISON OF 1994 TO 1993
Revenues and other income rose to $885 million in 1994, up $112 million, or
14%, from $773 million in 1993. The 14% increase in revenues in 1994 over 1993
was attributable to volume and price increases as well as revenues generated
from acquisitions. Net income for 1994 was $15.2 million, a 21% increase
compared to $12.6 million in 1993. Earnings per share increased 14% to $1.65 in
1994 from $1.45 in 1993. Operating expenses and cost of goods sold expressed as
a percentage of revenues were 85.2% in 1993 and 85.9% in 1994. The increase in
operating expenses and cost of goods sold from $659 million in 1993 to $760
million in 1994 was $101 million, or 15%. As a result of this increase, the
Company's gross profit percentage declined although the gross profit amount for
1994 exceeded 1993's gross profit by approximately $9.8 million. The gross
profit amount increase resulting from higher revenues more than offset the
impact of a lower gross profit percentage in 1994. The gross profit percentage
was unfavorably impacted by intense competition and pricing pressures
experienced by some of the operating divisions of the Company, as well as the
impact from certain larger Ampco System Parking Division contracts whose gross
profit percentage is much lower. The Company's total insurance expense increased
7% to $45 million in 1994 from $42.1 million in 1993. The increase in insurance
expense was lower than the 14% revenue growth in 1994 over 1993. The Company's
safety program impacted the frequency and severity of workers' compensation
claims which led to a reduction in claims expense. This expense decrease was
more than offset by an escalating dollar value of liability claims, leading to
the overall increase in insurance expense.
Selling, general and administrative expenses were $96.1 million in 1994, up
$3.7 million, or 4% from $92.4 million in 1993. As a percentage of revenues,
these expenses were down to 11% in 1994 from 12% in 1993. Management was
successful in attaining its cost containment goals as revenues grew 14% while
selling, general and administrative expense growth was only 4%.
Higher debt levels during 1994 caused the interest expense in 1994 to be
$3.5 million as compared with $2.2 million in 1993, an increase of $1.3 million,
or 59%. The increase in bank borrowing was necessitated primarily by
acquisitions.
The effective income tax rates for 1994 and 1993 were 39.5% and 37.5%,
respectively. The effective income tax rate for 1994 would be comparable to 1993
after taking into account the decrease in income tax expenses for 1993 of
$540,000 arising from the effect of the Omnibus Budget Reconciliation Act of
1993's federal income tax rate change on the Company's deferred taxes as
calculated under Statement of Financial Accounting Standards No. 109.
11
<PAGE>
The Company's pre-tax income in 1994 was $25.1 million, an increase of 24%,
compared to $20.2 million in 1993. The growth in pre-tax income outpaced the
revenue growth in 1994 due primarily to benefits arising from the realization of
certain operating consolidation economies from recent acquisitions and, in part,
due to lower selling, general and administrative expenses resulting from cost
containment programs.
The results of operations from the Company's three industry segments and its
operating divisions for 1994 as compared to 1993 are more fully described below:
Revenues for the Janitorial Divisions segment in 1994 were $482 million, an
increase of $39 million, or 9% over 1993, while its operating profits increased
by 13% over 1993. The Janitorial Divisions segment accounted for approximately
54% of the Company's consolidated revenues for 1994. Revenue of ABM Janitorial
Services increased by 9% in 1994 as compared to 1993 primarily as a result of
acquisitions and, to a lesser extent, revenue increases from internal growth by
this Division's Northeast, Northwest and Southeast Regions. As a result of the
revenue increase, ABM Janitorial Services' operating profits increased 13% in
1994 compared to 1993. Continued decreases in labor and labor-related expenses
contributed to an improvement in gross profit for this Division in 1994 over the
prior year. The Division's selling, general and administrative expenses were in
line with its revenue growth. Easterday Janitorial Supply's revenues for 1994
were up approximately 9% compared to 1993 generally due to revenue increases in
Northern California from obtaining several large customers. In 1994, compared to
1993, an increase of 12% in operating profits was attained even with a lower
than expected gross profit percentage as a result of higher sales volume and a
reduction in selling, general and administrative expenses.
Revenues from the Public Service Divisions segment for 1994 were $174
million, a 44% increase over 1993. The Company's Public Service Divisions
accounted for approximately 20% of the Company's consolidated revenues. The
operating profits of these Divisions were up by 35% principally due to
acquisitions and new contracts obtained by Ampco System Parking. ABM Security
Services reported a slight decrease in revenues from loss of certain large
accounts and its profits increased by 8% in 1994 compared to 1993. The increase
in operating income in 1994 as compared to 1993 was due to a decrease in direct
labor and related expenses and a decrease in selling, general and administrative
expenses which resulted from this Division's cost cutting measures. Ampco System
Parking's revenues increased by 93% and its profits increased by 78% in 1994
over 1993. The increases in revenues and operating profits were primarily due to
the acquisition of System Parking and from obtaining contracts to manage parking
operations at several major airports in the U.S., including Los Angeles,
California; Honolulu, Hawaii; Cedar Rapids, Iowa; Newark, New Jersey and
Buffalo, New York, among others.
The Technical Divisions segment reported revenues of $229 million, which
represent approximately 26% of the Company's consolidated revenues for 1994, an
increase of approximately 9% over last year. Profit of the Technical Divisions
increased 19% compared to 1993. Amtech Engineering Services reported increased
revenues of 12% and a 45% increase in operating profits for 1994 compared to
1993. Revenue increases generally were recorded by all its regions 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. Revenues for Amtech Elevator Services were up by 8% for
1994 over 1993 principally due to increases in its service, repair and
installation lines of business, as well as an improved performance by its
Mexican subsidiary. Amtech Elevator's operating profits for 1994 compared to
1993 were up by 45% due to a combination of increased revenues, improved gross
profits and containment of selling, general and administrative expenses. Amtech
Lighting Services' revenues were up 10% largely due to an expanded contract base
from existing customers, as well as obtaining a large one-time energy saving
retrofit contract. Operating profits decreased by 3% during 1994 primarily due
to start-up administrative expenses and lower than expected gross margins
associated with the opening of three new branches. CommAir Mechanical Services'
revenues for 1994 were 5% above 1993, primarily due to construction revenues
which more than offset the decline in service maintenance revenues. Operating
profits of this Division were up 15% largely due to the start and completion of
a large installation contract during the fourth quarter of 1994 and a reduction
in selling, general and administrative expenses.
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, 1994 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, 1995. 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 of financial statements 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, 1994 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended October 31, 1995, 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.
KPMG Peat Marwick LLP
San Francisco, California
December 15, 1995
13
<PAGE>
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
OCTOBER 31 1994 1995
(in thousands of dollars except share amounts)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,368 $ 1,840
Accounts receivable (less allowances of $3,067 and $3,755) 140,788 158,075
Inventories 17,420 19,389
Deferred income taxes 11,638 11,429
Prepaid expenses and other current assets 12,228 19,134
- -----------------------------------------------------------------------------------------------------------
Total current assets 189,442 209,867
Investments and long-term receivables 6,841 5,988
Property, plant and equipment -- at cost 56,902 61,648
Less accumulated depreciation and amortization (37,083) (39,001)
- -----------------------------------------------------------------------------------------------------------
Property, plant and equipment -- net 19,819 22,647
Intangible assets (less accumulated amortization of $15,095 and $19,688) 61,373 69,279
Deferred income taxes 14,982 18,745
Other assets 7,013 8,447
- -----------------------------------------------------------------------------------------------------------
$ 299,470 $ 334,973
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Current portion of long-term debt $ 683 $ 679
Bank overdraft -- 5,361
Trade accounts payable 26,187 25,453
Income taxes payable 1,961 2,270
Accrued liabilities:
Compensation 19,807 25,595
Taxes -- other than income 8,693 10,725
Insurance claims 27,185 27,532
Other 14,761 16,625
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 99,277 114,240
Long-term debt 25,254 22,575
Retirement plans 5,978 7,627
Insurance claims 38,230 42,345
Commitments and contingencies
Series B 8% Senior redeemable cumulative preferred stock 6,400 6,400
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized; none issued -- --
Common stock, $.01 par value; 12,000,000 shares authorized: 9,049,000 and
9,366,000 shares issued and outstanding in 1994 and 1995, respectively 90 94
Additional capital 35,334 40,627
Retained earnings 88,907 101,065
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 124,331 141,786
- -----------------------------------------------------------------------------------------------------------
$ 299,470 $ 334,973
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</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 1993 1994 1995
(in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME $ 773,312 $ 884,633 $ 965,381
- -----------------------------------------------------------------------------------------------------------
EXPENSES
Operating expenses and cost of goods sold 658,503 760,056 830,749
Selling, general and administrative 92,403 96,059 99,521
Interest 2,164 3,459 3,699
- -----------------------------------------------------------------------------------------------------------
753,070 859,574 933,969
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 20,242 25,059 31,412
Income taxes 7,596 9,890 13,193
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 12,646 $ 15,169 $ 18,219
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.45 $ 1.65 $ 1.85
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
COMMON AND COMMON EQUIVALENT SHARES 8,646 8,908 9,590
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCK
YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995 -------------------------- ADDITIONAL RETAINED
(in thousands, except per share amounts) SHARES AMOUNT CAPITAL EARNINGS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE OCTOBER 31, 1992 8,514 $ 85 $ 27,488 $ 70,636
Net income 12,646
Dividends:
Common stock at $0.50 per share (4,339)
Preferred stock at $13.56 per share (87)
Stock issued under employees' stock purchase and option plans 264 3 3,756
- ---------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1993 8,778 88 31,244 78,856
Net income 15,169
Dividends:
Common stock at $0.515 per share (4,606)
Preferred stock at $80.00 per share (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 at $0.60 per share (5,549)
Preferred stock at $80.00 per share (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
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</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 1993 1994 1995
(in thousands of dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 766,610 $ 868,041 $ 944,570
Other operating cash receipts 2,334 1,638 1,931
Interest received 634 505 489
Cash paid to suppliers and employees (739,819) (830,861) (912,617)
Interest paid (2,689) (3,982) (4,096)
Income taxes paid (9,825) (13,485) (16,438)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,245 21,856 13,839
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,187) (8,539) (10,225)
Proceeds from sale of assets 320 162 590
Decrease in investments and long-term receivables 1,071 288 853
Intangible assets acquired (17,694) (7,148) (12,499)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (22,490) (15,237) (21,281)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,759 4,092 5,297
Dividends paid (4,426) (5,118) (6,061)
Increase (decrease) in bank overdraft 4,231 (4,231) 5,361
Decrease in notes payable (1,301) -- (4)
Long-term borrowings 15,000 50,000 89,000
Repayments of long-term borrowings (12,695) (45,682) (91,679)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,568 (939) 1,914
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (677) 5,680 (5,528)
Cash and cash equivalents beginning of year 2,365 1,688 7,368
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF YEAR $ 1,688 $ 7,368 $ 1,840
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 12,646 $ 15,169 $ 18,219
ADJUSTMENTS:
Depreciation and amortization 7,158 9,300 11,527
Provision for bad debts 2,187 1,915 1,536
Gain on sale of assets (147) (141) (127)
Deferred income taxes (4,256) (2,353) (3,554)
Increase in accounts receivable (3,767) (14,793) (18,823)
Increase in inventories (2,486) (1,132) (1,969)
Increase in prepaid expenses and other current assets (2,707) (2,139) (6,906)
Increase in other assets (1,055) (1,070) (1,434)
Increase (decrease) in income taxes payable 2,027 (1,242) 309
Increase in retirement plans accrual 926 1,404 1,649
Increase in insurance claims liability 4,948 4,086 4,462
Increase in trade accounts payable and other accrued liabilities 1,771 12,852 8,950
- ----------------------------------------------------------------------------------------------------------
Total adjustments to net income 4,599 6,687 (4,380)
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 17,245 $ 21,856 $ 13,839
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</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 all 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.
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: Major renewals, replacements and betterments
are capitalized at cost. 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 is 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
terms of the respective leases.
AMORTIZATION OF INTANGIBLE ASSETS: Intangible assets consist of goodwill,
customer lists and noncompete agreements. Goodwill, which represents the excess
of cost over fair value of 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 $1,094,000
at cost until such time as there may be evidence of diminution in value.
Customer lists and noncompete agreements are amortized over the estimated period
to be benefited, generally from 5 to 15 years. The Company annually evaluates
the existence of goodwill impairment on the basis of whether the goodwill is
fully recoverable from projected, undiscounted net cash flows of the related
business unit. Impairment would be recognized in operating results if a
permanent diminution in value were to occur.
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 recorded at the time services are
performed or when products are shipped except for long-term contracts that are
recorded on the percentage-of-completion method. The percentage-of-completion
method is used by both the Amtech Elevator Services and CommAir Mechanical
Services Divisions of the Technical Divisions segment for their long-term
contracts. Revenues and gross profit are recognized as work is performed based
on the relationship between actual costs incurred and total estimated costs at
completion. Revenues and gross profit are adjusted prospectively for revisions
in estimated total contract costs and contract values. Estimated losses are
recorded when identified.
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 $87,000 in 1993 and $512,000 in
1994 and 1995, 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.
STATEMENTS OF CASH FLOWS: For purposes of the comparative statements of
cash flows, the Company considers all highly liquid instruments with original
maturities of three months or less to be cash and cash equivalents.
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
17
<PAGE>
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, 1994 and 1995 was $65,415,000 and $69,877,000, respectively. In
connection with certain self-insurance agreements, the Company has standby
letters of credit at October 31, 1995 supporting the estimated unpaid liability
in the amounts of $71,895,000.
3. INVENTORIES
The inventories at October 31, consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1994 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Janitorial supplies and equipment held for sale $ 3,278 $ 3,301
Parts and materials 12,683 14,444
Work in process 1,459 1,644
- -------------------------------------------------------------------------------------------------------
$17,420 $19,389
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, consisted of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1994 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,901 $ 1,718
Buildings 4,162 4,647
Transportation equipment 8,599 9,825
Machinery and other equipment 33,187 37,076
Leasehold improvements 9,053 8,382
- -------------------------------------------------------------------------------------------------------
$56,902 $61,648
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
5. LONG-TERM DEBT AND CREDIT AGREEMENT
Prior to September 22, 1994, the Company had a $20,000,000 credit agreement
with a major U.S. bank. In conjunction with the negotiation of the new credit
facility described below, this line was terminated. On September 22, 1994, the
Company signed a new $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, 1995, the total outstanding amount under
this facility was $93,255,000 comprised of $21 million in loans and $72,255,000
in standby letters of credit. The interest rate at October 31, 1995 was 7.8%.
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 connection with the Company's acquisition of System Parking, $3,818,000
of 9.35% fixed rate fully amortizing debt with a major insurance company was
assumed. Terms call for monthly interest payments and equal annual principal
payments. The loan matures October 1, 1998.
The long-term debt of $22,575,000 matures in the years ending October 31 as
follows: $679,000 in 1997; $21,679,000 in 1998; $43,000 in 1999; $43,000 in
2000; and $131,000 in subsequent years.
Long-term debt at October 31, is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1994 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to bank $23,000 $21,000
Note payable to insurance company 2,545 1,909
Notes payable, contracts and annuities payable with interest rates from 8% to 8.75%
payable through 2001 392 345
- -------------------------------------------------------------------------------------------------------
25,937 23,254
Less current portion 683 679
- -------------------------------------------------------------------------------------------------------
$25,254 $22,575
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
6. EMPLOYEE BENEFIT PLANS
(A) RETIREMENT AGREEMENTS
The Company has unfunded retirement agreements for 27 current and former
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 being accrued over the period the senior
executives are expected to be employed by the Company. During 1993, 1994 and
1995, amounts accrued under these agreements were $301,000, $178,000 and
$307,000, respectively. Payments were made in 1993, 1994 and 1995 in the amounts
of $150,000, $112,000 and $112,000, respectively.
(B) PROFIT SHARING AND EMPLOYEE SAVINGS PLAN
The Company has a discretionary noncontributory profit sharing and employee
savings 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. All amounts
contributed to the plan are deposited in a trust fund
18
<PAGE>
with a national bank and administered by independent trustees.
The Company provided for profit sharing contributions of $417,000, $385,000
and $920,000 for 1993, 1994 and 1995, respectively. The Company's matching
contributions required by the employee savings plan for 1993, 1994 and 1995 were
approximately $567,000, $500,000 and $602,000, 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) 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 380 $ 324 $ 352
Interest 91 108 139
- ----------------------------------------------------------------------------------------------------------------
Net cost $ 471 $ 432 $ 491
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 1,053 $ 1,436 $ 1,863
Accumulated benefit obligation $ 1,164 $ 1,523 $ 1,949
Projected benefit obligation $ 1,833 $ 1,970 $ 2,470
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in accounting for the plan as of October 31, were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7% 7% 7%
Rates of increase in compensation level 6% 5% 5%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</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 $8,600,000, $10,800,000 and $10,100,000 in 1993,
1994 and 1995, 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, 1995, future minimum lease commitments under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
<S> <C>
Years ending (in thousands of dollars)
- ---------------------------------------------------------------
1996 $ 58,367
1997 52,353
1998 29,150
1999 13,740
2000 6,525
Thereafter 8,498
- ---------------------------------------------------------------
Total minimum lease commitments $ 168,633
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
Rental expense for the years ended October 31, is summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(in thousands of dollars) 1993 1994 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals under
noncancelable leases $ 26,565 $ 36,724 $ 47,114
Contingent rentals 9,648 17,398 16,400
Short-term rental agreements 5,792 20,855 23,835
- ------------------------------------------------------------------
$ 42,005 $ 74,977 $ 87,349
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</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 some of its subsidiaries have been named defendants in
certain litigation arising in 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 financial position.
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
19
<PAGE>
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 annual
earnout requirements.
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
In 1984, the Company adopted an executive stock option plan whereby 340,000
shares were reserved for grant. 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, 1995, 19,500 options were
exercisable and 500 options remained available for grant.
Transactions under this plan are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
<S> <C> <C>
Balance October 31, 1992 238,000 $11.44 - $17.44
Options exercised (6,000) $11.44
- ---------------------------------------------------------------
Balance October 31, 1993 232,000 $11.44 - $17.44
Options terminated (3,000) $11.44
- ---------------------------------------------------------------
Balance October 31, 1994 229,000 $11.44 - $17.44
Granted 104,500 $22.50 - $26.56
Options exercised (6,000) $11.44
- ---------------------------------------------------------------
Balance October 31, 1995 327,500 $11.44 - $26.56
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
In 1987, the Company adopted a stock option plan under which 600,000 shares
were reserved for grant until December 31, 1996. In March 1994, this plan was
amended to reserve an additional 500,000 shares. During 1994, 454,500 options
were granted at a fair market price of $17.81 and $19.59. During 1995, 18,000
options were granted at a fair market price of $20.63 to $26.56. Options which
terminate without being exercised may be reissued.
Transactions under this plan are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
<S> <C> <C>
Balance October 31, 1992 516,990 $ 9.57 - $16.97
Options exercised (26,485) $11.56 - $16.97
Options terminated (6,640) $12.13 - $16.97
- ---------------------------------------------------------------
Balance October 31, 1993 483,865 $ 9.57 - $16.97
Granted 454,500 $17.81 - $19.59
Options exercised (15,600) $12.13 - $16.97
Options terminated (26,400) $12.13 - $16.97
- ---------------------------------------------------------------
Balance October 31, 1994 896,365 $ 9.57 - $19.59
Granted 18,000 $20.63 - $26.56
Options exercised (27,305) $11.44 - $17.81
Options terminated (22,200) $12.13 - $20.63
- ---------------------------------------------------------------
Balance October 31, 1995 864,860 $ 9.57 - $26.56
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
At October 31, 1995, there were 451,260 options exercisable and 82,140
options remained available for grant.
The Company has an employee stock purchase plan under which sale of 2.5
million shares of its common stock has been 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 1993, 1994 and 1995, 232,000, 255,000 and 283,000
shares of stock were issued under the plan for an aggregate purchase price of
$3,362,000, $3,849,000 and $4,805,000, respectively. At October 31, 1995,
368,992 shares remained unissued under the plan.
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 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. The rights expire on April 22, 1998,
20
<PAGE>
and may be redeemed at a price of $.01 under certain circumstances.
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.
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) 1993 1994 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 9,693 $ 9,621 $ 14,630
State 2,325 1,992 2,016
Foreign 224 630 100
Deferred
Federal (3,947) (2,111) (3,237)
State (699) (242) (316)
- -------------------------------------------------------------------
$ 7,596 $ 9,890 $ 13,193
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The 1993 deferred federal income tax benefit includes a $540,000 benefit
associated with the Omnibus Budget Reconciliation Act of 1993 enacted on August
10, 1993.
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>
- --------------------------------------------------------------------------
1993 1994 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local taxes on income, net
of federal tax benefit 5.2% 4.5% 3.4%
Tax rate change on deferred tax assets
and liabilities (2.7)% -- --
Targeted job tax credits (2.0 )% (2.6 )% (1.5 )%
Nondeductible expenses and other --
net 2.0 % 2.6 % 5.1 %
- --------------------------------------------------------------------------
37.5 % 39.5 % 42.0 %
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</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) 1994 1995
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Self-insurance claims $ 23,930 $ 25,396
Bad debt allowance 1,480 1,737
Deferred and other compensation 2,847 3,719
State taxes 508 827
Other 419 1,060
- -----------------------------------------------------------------
Total deferred tax assets 29,184 32,739
- -----------------------------------------------------------------
Deferred tax liabilities:
Union pension contributions (2,179) (2,426)
Customer lists (118) (21)
Depreciation (267) (118)
- -----------------------------------------------------------------
Total deferred tax liabilities (2,564) (2,565)
- -----------------------------------------------------------------
Net deferred tax assets $ 26,620 $ 30,174
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
The Company believes that a valuation reserve is not needed to reduce
deferred tax assets because it is expected that all deferred assets will
ultimately be realized.
12. ACQUISITIONS AND DIVESTITURES
All acquisitions have been accounted for as purchases; 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 or customer lists when paid. Cost of acquisitions,
including amounts based on subsequent earnings, were approximately $24.1 million
in 1993, $7.1 million in 1994 and $12.5 million in 1995. Included in the 1993
amount is the redemption value of redeemable preferred stock of the Company of
$6,400,000 issued in conjunction with the acquisition of System Parking (see
Note 9).
On November 1, 1994, the Company acquired the janitorial operations of
Quality Building Maintenance, Inc. of Seattle, Washington. 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 four-year
period. On January 1, 1995, the janitorial operations of Consolidated Chemical
of Tyler, Texas were acquired for a cash down payment plus contingent payments
to be made over a period of four years based on gross profit from the contracts
acquired.
21
<PAGE>
On January 1, 1995, the Company's subsidiary, Ampco Auto Parks, Inc.,
acquired in a cash transaction, substantially all of the parking operations of
Pansini Corporation, a San Francisco based company that had approximately 100
facilities in California and Hawaii. In addition to amounts paid at closing, the
acquisition agreement provides for additional payments over the subsequent five
years based upon the gross profit of contracts acquired.
On July 1, 1995, the Company acquired the janitorial operations of United
Cleaning Specialists Corp. of Atlanta, Georgia. United Cleaning Specialists
provided janitorial services in Alabama, Florida, Georgia, North and South
Carolina, Tennessee and Virginia. In addition to the amount paid at closing,
annual contingent payments based upon gross profit of acquired contracts will be
made over the next five years. On September 1, 1995, the Company acquired the
janitorial business of Allied Janitorial Service Company of Spokane, Washington,
for a cash down payment plus contingent payments to be made over a five-year
period based on gross profits derived from the contracts acquired.
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.
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 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>
1994
Revenues and other income $210,839 $215,872 $224,965 $232,957 $884,633
Gross profit 29,363 31,234 30,562 33,418 124,577
Net income 2,827 3,318 4,146 4,878 15,169
Net income per common share 0.31 0.36 0.45 0.53 1.65
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 0.35 0.40 0.51 0.59 1.85
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
15. SEGMENT INFORMATION
(in thousands of dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLIC
JANITORIAL SERVICE TECHNICAL CONSOLIDATED
FOR THE YEAR ENDED OCTOBER 31, 1993 DIVISIONS DIVISIONS DIVISIONS CORPORATE ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and other income $442,241 $121,053 $209,520 $ 498 $ $773,312
Intersegment revenues 9,609 60 293 (9,962) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $451,850 $121,113 $209,813 $ 498 $ (9,962) $773,312
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 19,545 $ 4,797 $ 9,111 $(11,047) $ $ 22,406
Interest, expense (45) (5) (47) (2,067) (2,164)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 19,500 $ 4,792 $ 9,064 $(13,114) $ $ 20,242
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 99,128 $ 64,545 $ 75,628 $ 28,839 $ $268,140
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,059 $ 963 $ 1,615 $ 368 $ $ 5,005
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 763 $ 754 $ 636 $ $ $ 2,153
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,764 $ 1,008 $ 2,020 $ 395 $ $ 6,187
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Intersegment revenues are recorded at prices negotiated between the entities.
23
<PAGE>
SCHEDULE II
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED VALUATION ACCOUNTS
For the Three Years Ended October 31, 1993, 1994 and 1995
(in thousands of dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE CHARGES TO DEDUCTIONS
BEGINNING COSTS AND NET OF OTHER ADDITIONS BALANCE
OF YEAR EXPENSES RECOVERIES (REDUCTIONS) END OF YEAR
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
Years ended October 31:
1993 $ 2,806 $ 1,187 $ (892) $ 3,101
1994 3,101 1,915 (1,949) 3,067
1995 3,067 1,536 (848) 3,755
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
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 1996 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 1996 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 1996 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 1996 Annual Meeting of Stockholders.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDU