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, 1994
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, 1994, nonaffiliates of the registrant beneficially owned
shares of the registrant's common stock with an aggregate market value of
$157,833,044.
As of December 31, 1994, there were 9,095,176 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 1995 Annual
Meeting of Stockholders is incorporated by reference into Part III of this Form
10-K.
PART I
ITEM 1. BUSINESS.
ABM Industries Incorporated is engaged in the business of providing
commercial, industrial and institutional janitorial, window cleaning and
building maintenance services. The Company is also engaged in the business of
air conditioning, heating equipment, elevator and escalator installation, repair
and servicing; lighting and outdoor signage installation and maintenance;
parking facility operations; building security services; and janitorial supplies
and equipment sales. Unless the context otherwise requires, the "Company" refers
to ABM Industries Incorporated and subsidiaries.
The Company was incorporated in California in 1955 as the successor to a
business founded in 1909. On April 2, 1985, the stockholders of the Company
approved a reorganization in which the Company's state of incorporation was
changed from California to Delaware effective March 19, 1985. The executive
offices of the Company are located at 50 Fremont Street, Suite 2600, 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, Amtech Divisions and Other
Divisions.
JANITORIAL AMTECH OTHER
DIVISIONS DIVISIONS DIVISIONS
- --------------------------------------------------------------------------------
ABM Janitorial Services ABM Engineering Services Ampco System Parking
Easterday Janitorial Supply Amtech Elevator Services ASI Security Services
Amtech Lighting Services
CommAir Mechanical Services
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, 1994, 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 90 offices
throughout the United States and Canada, this segment accounted for
approximately 59%, 57% and 54% of the Company's revenues in the fiscal years
ended October 31, 1992, 1993 and 1994, respectively.
/ / ABM JANITORIAL SERVICES provides a wide range of basic janitorial
services for a variety of structures and organizations, including office
buildings, industrial factories, 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 84
offices in 29 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 Company's
maintenance contracts are fixed price agreements, others contain clauses
under which the customer agrees to reimburse the Company for the full amount
of wages, payroll taxes, insurance premiums and other expenses plus a profit
percentage. The majority of the Company's contracts are for one-year
periods, contain automatic renewal clauses and are subject to termination at
will 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 1994,
accounted for approximately 32% of Easterday Janitorial Supply's revenues,
the principal customers for this division are industrial plants, schools,
commercial buildings, industrial organizations, transportation terminals,
theaters, hotels, department 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
AMTECH DIVISIONS
Amtech, through its four operating divisions, provides its customers with a
wide range of engineering, elevator, lighting and mechanical services. 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
subcontractors. A number of Amtech's 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. The
Amtech 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.
Amtech operates from 48 offices located in Arizona, California, Colorado,
Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Michigan, Minnesota,
Nevada, New Jersey, New Mexico, Oregon, Texas, Washington, Washington, D.C.,
Wisconsin and Mexico. For the fiscal years ended October 31, 1992, 1993 and
1994, Amtech accounted for approximately 26%, 27% and 26%, respectively, of the
Company's revenues.
Operations of the four Amtech Divisions during fiscal year 1994 are
described below:
/ / ABM ENGINEERING SERVICES provides building owners and managers with
staffs of on-site 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. ABM Engineering Services maintains five
offices, two of which are in California and one each in Seattle, Washington;
Chicago, Illinois; and Phoenix, Arizona.
/ / AMTECH ELEVATOR SERVICES installs, maintains and repairs elevators
and escalators in major metropolitan areas of California; Houston and
Amarillo, Texas; Detroit, Michigan; Upper Marlboro and Baltimore, Maryland;
Las Vegas, Nevada; Pennsauken, New Jersey; Atlanta, Georgia; Philadelphia,
Pennsylvania; Denver, Colorado; Chicago, Illinois; and Washington, D.C.
Amtech Elevator Services builds elevator units in Rosarito, Mexico,
maintains sixteen offices and several parts warehouses and operates a fleet
of radio-equipped service vehicles.
/ / AMTECH LIGHTING SERVICES provides relamping, fixture cleaning and
periodic maintenance service to its customers. Amtech Lighting Services also
repairs, services, designs and 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
and heating equipment and provides building engineering and energy
management services to commercial, industrial and institutional facilities.
CommAir Mechanical Services maintains eleven offices, ten of which are
located in California, and one office in Phoenix, Arizona.
OTHER DIVISIONS
At October 31, 1994, operations of the Company's Other Divisions segment
provided parking facility management services and business security and
investigative services to their customers.
The Other Divisions operated from 39 offices which were located throughout
the United States. For the fiscal years ended October 31, 1992, 1993 and 1994,
the Other Divisions accounted for approximately 15%, 16% and 20%, respectively,
of the Company's revenues.
The two Other Divisions are described below:
/ / AMPCO SYSTEM PARKING operates approximately 1,321 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.
/ / ASI SECURITY SERVICES provides special investigative and security
consulting services and security guards to a wide range of businesses in the
major metropolitan areas of San Francisco, San Diego and Los Angeles,
California; Houston, Dallas/Fort Worth and San Antonio, Texas; Chicago,
Illinois; Phoenix, Arizona; Seattle, Washington; and Portland, Oregon. Much
like ABM Janitorial Services, the majority of this Division's
3
contracts are for one-year periods, contain automatic renewal clauses and
are subject to termination at will by either party upon 30 to 90 days
written notice.
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 with their employees. Generally, these nonunionized
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
geographical base of the Company's regional offices, along with its divisional
personnel, enables the Company to provide a full range of building services,
which are available individually or as a part of the Company's integrated
services 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, 1994.
EMPLOYEES
The Company, through its various Divisions' subsidiaries and departments,
employs approximately 42,000 persons, of whom about 2,600 are in sales,
clerical, supervisory and executive positions. The balance of the employees are
employed in various building maintenance functions including janitorial and
building maintenance, parking, distribution and security guards. Approximately
17,800 employees are covered under collective bargaining agreements.
4
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of January 1, 1995, are as follows:
PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
William C. Banner 60 Vice President of the Company, and President of the Company's
Security Division
J. E. Benton, III 54 Senior Vice President, Office of the President, since July 1994;
Vice President of the Company from November 1977 to July 1994
Donna M. Dell 46 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 58 Vice President of the Company, and President of the Company's
Janitorial Services Division
David H. Hebble 59 Vice President and Chief Financial Officer
Harry H. Kahn 51 Vice President, General Counsel and Secretary
Hussain A. Khan 58 Controller and Chief Accounting Officer since March 1993;
Controller from March 1983 to March 1993
Martinn H. Mandles 54 Executive Vice President and Chief Administrative Officer since
November 1991; Vice President from October 1972 to November 1991
Sydney J. Rosenberg 80 Chairman of the Board; Chief Executive Officer from November 1991
to November 1994
Sherrill F. Sipes, Jr. 59 Senior Vice President, Office of the President, since July 1994;
Vice President from May 1968 to July 1994
William W. Steele 58 Chief Executive Officer since November 1994; President since
November 1991; Chief Operating Officer from November 1991 to
November 1994; Executive Vice President and Chief Operating
Officer from April 1988 to October 1991
5
ITEM 2. PROPERTIES.
The Company has sales, operations, warehouse and administrative facilities
in 210 locations throughout the United States, Canada and Mexico. Fifteen of
these facilities are owned by the Company and the remaining 195 are leased. At
October 31, 1994, the real estate owned by the Company had an aggregate net book
value of $4,276,000 and was located in: San Francisco, Los Angeles and Fresno,
California; Houston and Austin, Texas; Phoenix, Arizona; Seattle, Spokane and
Tacoma, Washington; Portland, Oregon; Jacksonville and Tampa, Florida; Winnipeg,
Manitoba, Canada; and Rosarito Beach, Baja, Mexico.
Rental payments under long and short-term lease agreements amounted to
$74,977,000 for the fiscal year ended October 31, 1994. Of this amount,
$60,369,000 in rental expense was attributable to the Company's Parking Division
for the parking facilities that it operates and manages. The remaining rent
expense was for equipment, vehicles, office and warehouse space.
ITEM 3. LEGAL PROCEEDINGS.
As previously reported, the Company and certain of its officers and
directors were defendants in an action entitled ACS FINANCIAL, INC. ET AL. V.
AMERICAN BUILDING MAINTENANCE INDUSTRIES, INC. filed on April 15, 1991 in the
Los Angeles County Superior Court. That action arose from the unsuccessful
efforts to buy out the Company in 1990. In February 1993, the Court approved a
settlement between the plaintiffs and certain defendants, including the Company
and its officers and directors named in the action. The nonsettling defendants,
including Kidder, Peabody & Co. and General Electric Capital Corporation,
challenged this settlement, but their petitions were subsequently denied on
appeal.
On or about April 16, 1993, the nonsettling defendants, including Kidder,
Peabody & Co. Incorporated, General Electric Capital Corporation, and G.E.
Corporate Finance Group, Inc. (collectively, "Kidder/GE"), filed
cross-complaints against the Company, certain members of its management, ABM
Acquisition Corporation, a corporation organized by the proposed buy-out group
("ABMA"), and others. The cross-complaints alleged that the Company and its
management were the alter egos of each other and of ABMA, and that this Company
was liable to Kidder/GE for fees and expenses, and for certain indemnification
obligations of ABMA to the nonsettling defendants in connection with the
proposed buyout. The cross-complaint sought unspecified damages in amounts which
they alleged to be not less than $8 million, plus unspecified punitive damages
and attorneys' fees. The Company believing the claims against it to be legally
barred and totally without merit, contested them by filing demurrers to all of
the causes of action against it. On July 16, 1993, the Superior Court sustained
all of the Company's demurrers without leave to amend and granted the Company's
motion to dismiss the cross-complaints against the Company. On September 13,
1993 Kidder/GE appealed the Superior Court's ruling.
On or about October 18, 1994, the parties to the cross-complaints settled
that action, including the pending appeal, and agreed to a mutual release of all
claims relating to the cross-complaints or the underlying action. As part of the
settlement, certain of the individual defendants paid the cross-complaints the
sum of $60,000. The Company made no payments as part of its settlement and has
no continuing liabilities in connection with these actions other than any claims
for expense reimbursement by certain of its officers and directors under the
Company's existing indemnification bylaws and agreements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
6
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.b to the
consolidated financial statements). 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:
FISCAL QUARTER
--------------------------------------
FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------------------------------------------------------------------------------
1993
Price range of common stock:
High $20 $21 5/8 $21 $17
Low $17 1/4 $18 $16 1/2 $14 3/4
Dividends per share $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.50
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
At December 31, 1994, there were approximately 3,600 holders of the Company's
common stock.
7
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, 1994:
- ------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts and ratios) 1990 1991 1992 1993 1994
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
Revenues and other income $ 679,128 $ 745,721 $ 760,097 $ 773,312 $ 884,633
- ------------------------------------------------------------------------------------------------------------
Expenses
Operating expenses and cost of goods sold 579,284 632,792 643,346 658,503 760,056
Selling and administrative 86,638 91,230 94,273 92,403 96,059
Interest 2,667 3,121 2,061 2,164 3,459
- ------------------------------------------------------------------------------------------------------------
668,589 727,143 739,680 753,070 859,574
- ------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary gain 10,539 18,578 20,417 20,242 25,059
Income taxes 4,237 7,478 8,425 7,596 9,890
- ------------------------------------------------------------------------------------------------------------
Income before extraordinary gain 6,302 11,100 11,992 12,646 15,169
Extraordinary gain (net of income taxes of $1,047) 1,387 -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net income $ 7,689 $ 11,100 $ 11,992 $ 12,646 $ 15,169
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Income per common share before extraordinary gain $ 0.80 $ 1.36 $ 1.43 $ 1.45 $ 1.65
Extraordinary gain per common share 0.17 -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.97 $ 1.36 $ 1.43 $ 1.45 $ 1.65
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Common and common equivalent shares 7,950 8,146 8,397 8,646 8,908
FINANCIAL STATISTICS
Dividends per common share $ 0.47 $ 0.473 $ 0.49 $ 0.50 $ 0.515
Stockholders' equity per common share $ 9.57 $ 10.53 $ 11.54 $ 12.55 $ 13.74
Working capital $ 67,356 $ 62,905 $ 76,484 $ 76,613 $ 90,165
Current ratio 2.01 1.79 2.00 1.85 1.91
Long-term debt $ 20,005 $ 9,477 $ 15,435 $ 20,937 $ 25,254
Redeemable cumulative preferred stock $ -- $ -- $ -- $ 6,400 $ 6,400
Stockholders' equity $ 76,942 $ 86,938 $ 98,209 $ 110,188 $ 124,331
Total assets $ 199,080 $ 209,036 $ 223,724 $ 268,140 $ 299,470
Property, plant and equipment -- net $ 16,215 $ 15,595 $ 15,009 $ 17,043 $ 19,819
Capital expenditures $ 6,102 $ 5,647 $ 5,225 $ 6,187 $ 8,539
Depreciation and amortization $ 7,019 $ 6,970 $ 6,634 $ 7,158 $ 9,300
Accounts receivable -- net $ 108,664 $ 110,472 $ 120,885 $ 127,908 $ 140,788
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
All share and per share amounts have been restated to retroactively reflect
the two-for-one stock split in 1992.
8
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 expires September 22, 1998, and at the Company's option, may be
extended one year. The credit facility provides, at the Company's option,
interest at the prime rate or IBOR+.45%. As of October 31, 1994, the total
amount outstanding under this facility was approximately $72 million which was
comprised of loans in the amount of $23 million and standby letters of credit of
$49 million. The interest rate at October 31, 1994 was 6.3%. 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, as discussed in Note
12 of the Consolidated Financial Statements, 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, 1994, the balance remaining on this note was $2,545,000.
At October 31, 1993, working capital was $76.6 million, as compared to $90.2
million at October 31, 1994.
Cost of acquisitions during the fiscal years ended October 31, 1992, 1993,
and 1994 (hereinafter referred to as 1992, 1993 and 1994, respectively),
including payments pursuant to contractual arrangements involved in prior
acquisitions, were approximately $3.3 million, $24.1 million, and $7.1 million,
respectively. Capital expenditures, including assets acquired for cash through
acquisitions, during 1992, 1993, and 1994 were $5.2 million, $6.2 million, and
$8.5 million, respectively. Cash dividends paid to stockholders of common stock
were approximately $4.1 million in 1992, $4.3 million in 1993, and $4.6 million
in 1994. In 1994, the Company paid preferred stock dividends of $512,000.
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.
ENVIRONMENTAL MATTERS
In the opinion of management, compliance with present environmental
protection laws will not have a material adverse effect on the financial
position of the Company. The Company endeavors to comply with all the
environmental regulations.
ACQUISITIONS
On March 1, 1994, the Company's Janitorial Services Division acquired the
operations of General Maintenance Service Company, Inc. in Washington, D.C.
General Maintenance provides janitorial services to major commercial buildings
and institutions in Washington, D.C., Maryland, and Virginia. At the time of
acquisition by the Company, General Maintenance reported annual revenues of
approximately $18.9 million. 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.
Effective November 1, 1994, the Company's Janitorial Services Division
acquired substantially all of the maintenance services contracts from Quality
Building Maintenance, Inc. of Seattle. This acquisition is expected to add
approximately $3.5 million in annual revenues for the Division's Northwest
Region in Seattle.
As of January 1, 1995, the Company's Parking Division acquired the parking
operations of Pansini Corporation for a cash downpayment made at the time of the
closing plus annual contingent payments based upon gross profit of acquired
contracts to be made over a five-year period. The parking contracts obtained as
a result of this acquisition are expected to add approximately 100 facilities in
California and Hawaii and approximately $10 million in annual revenues.
In addition, purchase agreements of prior acquisitions provide for
contingent payments based on the annual pretax income for periods subsequent to
acquisition ranging from two to five years.
9
RESULTS OF OPERATIONS
COMPARISON OF 1993 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.
Revenues and other income (hereinafter called "revenues") rose to record
levels totaling $885 million in 1994, up $112 million, or 14%, from the prior
year revenues of $773 million. 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 (revenues minus operating expenses and cost of goods
sold) 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 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 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 expense 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.
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 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 (revenues
minus total expenses) 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 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 and administrative
expenses.
10
The Amtech 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 Amtech Divisions
increased 19% compared to 1993. CommAir Mechanical Services' revenues for 1994
were 5% above a year-ago levels, primarily due to construction revenues which
more than offset the decline in service maintenance revenues which management
anticipates will improve during 1995. 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 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.
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 profit, and containment of
selling and administrative expenses. ABM 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 and administrative
expenses.
Revenues from the Other Divisions segment for 1994 were $174 million, a 44%
increase over 1993. The Company's Other 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. 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 Buffalo, Cedar Rapids, Honolulu, Los
Angeles, and Newark, among others. Since some of the airport contracts were
obtained in the fourth quarter of the fiscal year 1994, management expects to
realize full year benefits from these contracts during the fiscal year 1995. ASI
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 the prior year was due to a
decrease in direct labor and related expenses and a decrease in selling and
administrative expenses which resulted from this Division's cost cutting
measures.
COMPARISON OF 1992 TO 1993
For the fiscal year ended October 31, 1993, the Company posted consolidated
revenues and other income of $773 million, an increase of $13 million, or 2%,
over $760 million reported for 1992. This increase in revenues was primarily due
to both volume and price increases. Net income for 1993 was $12,646,000, a five
percent increase compared to $11,992,000 in 1992. Earnings per share increased
by one percent to $1.45 in 1993 from $1.43 in 1992. Net income for the fiscal
year 1992 included a $1,380,000 or $0.17 per share, gain on the sale of real
estate, without which the Company's 1993 net income and earnings per share
exceeded 1992 by 19% and 15%, respectively. Operating expenses and cost of goods
sold were $659 million in 1993 as compared with $643 million in 1992, an
increase of $16 million, or 2%. Without taking into account a pre-tax gain of
approximately $2.4 million which arose from the sale of real estate in 1992,
operating expenses and cost of goods sold were slightly higher at 85.2% of
revenues in 1993 compared with 84.9% for the prior year. As a result, gross
profit as a percent of revenues declined from 15.1% in 1992 to 14.8% in 1993.
The erosion of gross profit margin was primarily due to an increase of
approximately $1.6 million in self-insurance expense, nearly all of which was
due to an increase in workers' compensation costs. Increases in labor and
labor-related expenses also adversely impacted the margins as the Company was
not able to pass on these increases, along with the insurance expense increase,
to its customers due to competitive pricing imposed by economic conditions.
Selling and administrative expenses were $92.4 million in 1993 and $94.3
million in 1992, a decrease of $1.9 million, or 2%. Selling and administrative
expenses also declined as a percentage of revenues from 12.4% in 1992 to 12% in
1993. The decrease in selling and administrative expenses was primarily due to a
combination of several factors which included the effectiveness of management's
commitment to cost control programs, reduction of legal
11
expenses and settlements, and benefits realized from the reduction in expenses
through consolidation of certain regional management.
Interest expense was $2,164,000 in 1993 compared to $2,061,000 in 1992, an
increase of $103,000, or 5%. This increase was principally due to higher bank
borrowings towards the end of the fiscal year 1993 and the assumption of a note
payable both of which were necessitated by the System Parking acquisition made
on September 1, 1993.
The Company adopted Statement of Financial Accounting Standards No. 109
(Statement 109), "Accounting for Income Taxes" during its fiscal year ended
October 31, 1993 and applied the provisions of Statement 109 retroactively to
November 1, 1988. The cumulative impact of Statement 109 for the fiscal years
through 1990 was a charge of $2,616,000 to retained earnings and was reflected
as a decrease to retained earnings at October 31, 1990.
The effective income tax rate for 1993 was 37.5% compared to 41.3% in 1992.
Primarily, this was due to 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 109, which was approximately a $540,000 decrease to
income tax expense. To a lesser extent, the lower rate was also due to a
reduction in the nondeductible expense component of the Company's tax provision.
The results of operations for the Company's three industry segments and its
operating divisions for the fiscal year 1993 as compared to 1992 are more fully
discussed below:
Revenues of the Janitorial Divisions segment were $442 million in the fiscal
year 1993, down $3 million or less than 1%, from $445 million reported for the
prior fiscal year. Operating profits of this segment decreased by 3%. The two
Janitorial Divisions accounted for approximately 57% of the Company's revenues
for 1993. For the fiscal year 1993, ABM Janitorial Services' revenues were 1%
below the prior year while its operating profits declined by 4% in 1993. The
decrease in revenues was generally due to the loss of certain major contracts,
as well as stiff competition in several of the larger metropolitan areas.
Partially offsetting this loss of revenues were revenues increases from
acquisitions made late in the fiscal year 1993. Operating profits of ABM
Janitorial Services were adversely impacted by increased bad debt expense in
1993 and from gross margin contributions lost from certain larger contracts. The
decrease in operating profits was partially offset by this Division's continued
efforts to manage labor and related expenses more effectively. Easterday
Janitorial Supply reported a 5% increase in sales and a 22% increase in
operating profits for 1993 over 1992. The increase in revenues, as well as the
improvement in its operating profits, were primarily due to income derived from
this Division's initiation of a wholesale distributor program at the beginning
of the 1992 fiscal year, and to a lesser extent, its more favorable purchasing
arrangements made with suppliers.
Revenues for the Amtech Divisions in 1993 increased to $210 million, or 5%,
over revenues generated in 1992 of $199 million. The four Amtech Divisions
accounted for approximately 27% of the Company's consolidated revenues in 1993.
The revenue increase was largely due to both volume and price increases.
Operating profits of the Amtech Divisions were significantly higher in 1993 than
the prior year primarily due to a turnaround by Amtech Elevator Services, a
continued improvement by Amtech Lighting Services, and somewhat offset by the
profit decline of CommAir Mechanical Services. Amtech Elevator Services'
revenues for 1993 were 2% higher than the prior year, and it returned to
profitability from an operating loss reported a year earlier. This Division's
profits resulted from management's commitment to reduce operating expenses by
stringent cost controls and procedures implemented for effective job management.
Additionally, Amtech Elevator Services benefited from not incurring certain
expenses in 1993 such as the settlement of a lawsuit and higher bad debt
expenses which negatively impacted the earnings in 1992. Although revenues for
ABM Engineering Services increased by 6%, operating profits were flat for 1993
compared with 1992. The increase in revenues in 1993 was a result of both volume
and price increases. As a percentage of revenues, a small decline in gross
profit was principally due to increases in direct labor and labor-related
expenses. Selling and administrative expenses were also up due to higher bad
debt expense and costs associated with opening a new branch. Amtech Lighting
Services' profits rose 33% on a revenue increase of 26% in 1993 when compared
with the prior year. The increase in revenues was largely attributable to a
continued growth of the service contract base, obtaining additional energy
conservation retrofit contracts, and the opening of new branches in Atlanta and
Tampa. Increased operating profits were primarily due to the increased sales
volume, and as a percentage of revenues, the selling and administrative expenses
were lower in 1993 as compared to 1992. This decrease was primarily attributable
to management's efforts to control expenses. CommAir Mechanical Services'
revenues and operating profits declined by 13% and 43%,
12
respectively, for the fiscal year 1993 when compared to 1992, primarily due to
competitive pricing pressure caused by weak economic conditions in California,
as well as the loss of a major customer early in 1993. With a significant drop
in revenues, the Division was unable to maintain operating margins to cover
various fixed expenses. However, this Division made additional cutbacks in
selling and administrative expenses to mitigate a further decline in operating
profits.
In 1993, the Other Divisions segment accounted for $121 million, or
approximately 16%, of the Company's consolidated revenues. This segment's
revenues increased by approximately $9 million in 1993 over the prior year,
while its operating profits declined by 3% as the two divisions of this segment
posted lower operating profits. Although Ampco System Parking's revenues
increased by 22% primarily due to acquisitions of Metro Parking and System
Parking effective January 1, 1993 and September 1, 1993, respectively, the
operating profits declined by 5% for 1993 compared to 1992. Operating profits
were down primarily due to depressed economic conditions especially in this
Division's Southern California and Northwest Regions. High office vacancy
conditions created by the economic slowdown and severe competition in the
metropolitan areas of these regions had substantially increased the vacancy of
parking spaces, thus depressing the Division's profits. Partially offsetting the
decline in this Division's operating profits was the inclusion of the Metro
Parking business acquired in Northern California and the two month's operations
of System Parking. Revenues for ASI Security Services for 1993 decreased by 3%
compared to the prior year, primarily due to the loss of a major customer in its
South Central Region and the sale of its New York City branch. The operating
profits of this Division also declined in 1993 as a result of increases in
direct labor and labor-related expenses over 1992 which could not successfully
be passed on to the customer due primarily to competitive market conditions.
Pricing pressures have caused the Division to reduce its gross margins in order
to retain jobs and also bid new jobs at lower margins. Selling and
administrative expenses decreased due largely to cost reduction programs
implemented by management to help offset the pressure placed on margins by
market conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
ABM Industries Incorporated:
We have audited the accompanying consolidated balance sheets of ABM
Industries Incorporated and Subsidiaries as of October 31, 1993 and 1994, 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, 1994. In
connection with our audits of the consolidated financial statements, we also
have audited consolidated financial statement schedule VIII. 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 and the financial
statement schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ABM
Industries Incorporated and Subsidiaries as of October 31, 1993 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended October 31, 1994, in conformity with generally
accepted accounting principles. Also in our opinion, the related consolidated
financial statement schedule VIII, 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.
San Francisco, California
December 19, 1994
13
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------
OCTOBER 31 1993 1994
(in thousands of dollars)
- -----------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,688 $ 7,368
Accounts receivable (less allowances of $4,101 and $4,067) 127,908 140,788
Inventories and supplies 16,288 17,420
Deferred income taxes 10,960 11,638
Prepaid expenses 10,089 12,228
- -----------------------------------------------------------------------------------------------------------
Total current assets 166,933 189,442
Investments and long-term receivables 7,129 6,841
Property, plant and equipment -- at cost 50,838 56,902
Less accumulated depreciation and amortization (33,795) (37,083)
- -----------------------------------------------------------------------------------------------------------
Property, plant and equipment -- net 17,043 19,819
Intangible assets:
Goodwill (less accumulated amortization of $7,598 and $9,265) 50,081 51,590
Other 7,704 9,783
Deferred income taxes 13,307 14,982
Other assets 5,943 7,013
- -----------------------------------------------------------------------------------------------------------
$ 268,140 $ 299,470
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Current portion of long-term debt $ 682 $ 683
Bank overdraft 4,231 --
Trade accounts payable 17,863 26,187
Income taxes payable 3,203 1,961
Accrued liabilities:
Compensation 16,695 19,807
Taxes -- other than income 8,474 8,693
Insurance claims 25,608 27,185
Other 13,564 14,761
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 90,320 99,277
Long-term debt 20,937 25,254
Retirement plans 4,574 5,978
Insurance claims 35,721 38,230
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: 8,778,000 and 9,049,000
shares issued and outstanding in 1993 and 1994, respectively 88 90
Additional capital 31,244 35,334
Retained earnings 78,856 88,907
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 110,188 124,331
- -----------------------------------------------------------------------------------------------------------
$ 268,140 $ 299,470
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
14
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 1992 1993 1994
(in thousands, except per share amounts)
- -----------------------------------------------------------------------------------------------------------
REVENUES AND OTHER INCOME $ 760,097 $ 773,312 $ 884,633
- -----------------------------------------------------------------------------------------------------------
EXPENSES
Operating expenses and cost of goods sold 643,346 658,503 760,056
Selling and administrative 94,273 92,403 96,059
Interest 2,061 2,164 3,459
- -----------------------------------------------------------------------------------------------------------
739,680 753,070 859,574
- -----------------------------------------------------------------------------------------------------------
Income before income taxes 20,417 20,242 25,059
Income taxes 8,425 7,596 9,890
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 11,992 $ 12,646 $ 15,169
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.43 $ 1.45 $ 1.65
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
COMMON AND COMMON EQUIVALENT SHARES 8,397 8,646 8,908
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCK
YEARS ENDED OCTOBER 31, 1992, 1993 AND 1994 -------------------------- ADDITIONAL RETAINED
(in thousands, except per share amounts) SHARES AMOUNT CAPITAL EARNINGS
- ----------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1991 4,130 41 24,126 62,771
Net income 11,992
Dividends ($.49 per common share) (4,127)
Two-for-one stock split 4,227 42 (42)
Stock issued under employees' stock purchase and option plans 157 2 3,404
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
15
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 1992 1993 1994
(in thousands of dollars)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 745,223 $ 766,610 $ 868,041
Other operating cash receipts 693 2,334 1,638
Interest received 637 634 505
Cash paid to suppliers and employees (730,708) (739,819) (830,861)
Interest paid (2,060) (2,689) (3,982)
Income taxes paid (8,853) (9,825) (13,485)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,932 17,245 21,856
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,225) (6,187) (8,539)
Proceeds from sale of assets 1,614 320 162
(Increase) decrease in investments and long-term receivables (488) 1,071 288
Intangibles resulting from acquisitions (3,328) (17,694) (7,148)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,427) (22,490) (15,237)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,406 3,759 4,092
Dividends paid (4,127) (4,426) (5,118)
Increase (decrease) in cash overdraft (2,777) 4,231 (4,231)
Increase (decrease) in notes payable (58) (1,301) --
Long-term borrowings 33,036 15,000 50,000
Repayments of long-term borrowings (27,104) (12,695) (45,682)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,376 4,568 (939)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (119) (677) 5,680
Cash and cash equivalents beginning of year 2,484 2,365 1,688
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF YEAR $ 2,365 $ 1,688 $ 7,368
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income $ 11,992 $ 12,646 $ 15,169
ADJUSTMENTS:
Depreciation and amortization 6,634 7,158 9,300
Provision for bad debts 2,550 2,187 1,915
Gain on sale of assets (2,492) (147) (141)
Increase in accounts receivable (11,963) (3,767) (14,793)
Increase in inventories and supplies (459) (2,486) (1,132)
Increase in prepaid expenses (1,183) (2,707) (2,139)
Increase in other assets (380) (1,055) (1,070)
Increase in deferred income taxes (87) (4,256) (2,353)
Increase (decrease) in income taxes payable (341) 2,027 (1,242)
Increase in retirement plans accrual 542 926 1,404
Increase (decrease) in insurance claims liability (2,199) 4,948 4,086
Increase in trade accounts payable and other accrued liabilities 2,318 1,771 12,852
- ----------------------------------------------------------------------------------------------------------
Total adjustments to net income (7,060) 4,599 6,687
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,932 $ 17,245 $ 21,856
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
16
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 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 AND SUPPLIES: Inventories and supplies 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 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.
Goodwill and customer lists in the amounts of approximately $18,860,000 and
$1,557,000 related to the System Parking acquisition on September 1, 1993, are
being amortized on a straight-line basis over 30 and 10 years, respectively.
Customer lists and noncompete agreements are amortized over the estimated period
to be benefited, generally from 5 to 10 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 which are
recorded on the percentage-of-completion method. The percentage-of-completion
method is used by both the Amtech Elevator and CommAir Mechanical Services
Divisions of the Amtech 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 and common equivalent
share, after the reduction for preferred stock dividends in the amount of
$87,000 in 1993 and $512,000 in 1994, 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 a maturity
of three months or less to be cash and cash
17
equivalents. Certain noncash transactions are excluded from the consolidated
statements of cash flows and are discussed in note 12.
2. INSURANCE
Certain insurable risks such as general liability, property damage and
workers' compensation are self-insured by the Company. However, the Company has
umbrella insurance coverage for certain risk exposures subject to specified
limits. Accruals for claims under the Company's self-insurance program are
recorded on a claim-incurred basis. Under this program, the estimated liability
for claims incurred but unpaid at October 31, 1993 and 1994 was $61,329,000 and
$65,415,000, respectively. In connection with certain self-insurance agreements,
the Company has standby letters of credit at October 31, 1994 supporting the
estimated unpaid liability in the amounts of $49,202,000.
3. INVENTORIES AND SUPPLIES
The inventories and supplies at October 31, consisted of the following:
- -------------------------------------------------------------------------------------------------------
(in thousands of dollars) 1993 1994
- -------------------------------------------------------------------------------------------------------
Janitorial supplies and equipment held for sale $ 3,401 $ 3,278
Materials and supplies 11,619 12,683
Work in process 1,268 1,459
- -------------------------------------------------------------------------------------------------------
$16,288 $17,420
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, consisted of the following:
- ---------------------------------------------------------------------------------------------
(in thousands of dollars) 1993 1994
- ---------------------------------------------------------------------------------------------
Land $ 1,255 $ 1,901
Buildings 4,108 4,162
Transportation equipment 7,727 8,599
Machinery and other equipment 29,415 33,187
Leasehold improvements 8,333 9,053
- ---------------------------------------------------------------------------------------------
$50,838 $56,902
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
5. DEBT
(A) SHORT-TERM DEBT AND LINES OF CREDIT
Prior to September 22, 1994, the Company had agreements with several banks
for lines of credit totaling $13,000,000. In conjunction with the negotiation of
the new credit facility described in (b) below, these lines were terminated.
As a result of maintaining a consolidated cash management system, the
Company maintains overdraft positions at certain banks. Such overdrafts are
included in current liabilities. The overdraft at October 31, 1993 was
$4,231,000. The Company was not in an overdraft position at October 31, 1994.
(B) 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. 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, 1994, the total outstanding amount under this
facility was $72,451,000 comprised of $23 million in loans and $49,451,000 in
standby letters of credit. The interest rate at October 31, 1994 was 6.3%. 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 $25,937,000 matures in the years ending October 31 as
follows: $683,000 in 1995; $683,000 in 1996; $683,000 in 1997; $23,697,000 in
1998; and $187,000 in 1999 and $4,000 in subsequent years.
Long-term debt at October 31, is summarized as follows:
- ---------------------------------------------------------------------------------------------
(in thousands of dollars) 1993 1994
- ---------------------------------------------------------------------------------------------
Note payable to bank $18,000 $23,000
Note payable to insurance company 3,181 2,545
Notes payable, contracts and annuities payable with interest rates from 8%
to 8.75% payable through 2001 438 392
- ---------------------------------------------------------------------------------------------
21,619 25,937
Less current portion 682 683
- ---------------------------------------------------------------------------------------------
$20,937 $25,254
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
(C) SWAP AGREEMENT
At October 31, 1994, the Company had outstanding an interest rate swap
agreement with a domestic commercial bank, having a notional principal amount
18
of $15 million. This agreement effectively changes the Company's interest rate
exposure on $15 million of its floating rate debt to a fixed 5.8%. The interest
rate swap agreement matures December 10, 1994. The Company is exposed to credit
loss in the event of nonperformance by the other parties to the interest rate
swap agreement. However, the Company does not anticipate nonperformance by the
counterparties.
6. EMPLOYEE BENEFIT PLANS
(A) RETIREMENT AGREEMENTS
The Company has unfunded retirement agreements for twelve current and former
senior executives. 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 1992, 1993 and 1994, amounts accrued under
these agreements were $210,000, $301,000 and $178,000, respectively. Payments
were made in 1992, 1993 and 1994 in the amounts of $140,000, $150,000 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 with a national bank and
administered by independent trustees.
The Company made profit sharing provisions of $417,000 and $385,000 for 1993
and 1994, respectively. No contribution was made to the profit sharing plan for
1992. The Company's matching contributions required by the employee savings plan
for 1992, 1993 and 1994 were approximately $490,000, $567,000 and $500,000,
respectively.
(C) SERVICE AWARD PLAN
The Company established an unfunded service award 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:
- ---------------------------------------------------------------------
(in thousands of dollars) 1992 1993 1994
- ---------------------------------------------------------------------
Service cost $ 331 $ 380 $ 324
Interest 72 91 108
- ---------------------------------------------------------------------
Net cost $ 403 $ 471 $ 432
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ 756 $ 1,053 $ 1,436
Accumulated benefit obligation $ 863 $ 1,164 $ 1,523
Projected benefit obligation $ 1,299 $ 1,833 $ 1,970
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Assumptions used in accounting for the plan as of October 31 were:
- ---------------------------------------------------------------------
1992 1993 1994
- ---------------------------------------------------------------------
Weighted average discount rate 8% 7% 7%
Rates of increase in compensation
level 6% 6% 5%
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
(D) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In 1994, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Post-Retirement Benefits Other than Pensions, which requires the Company to
record all post retirement benefits on an accrual basis. The adoption of this
Statement had no material effect on its financial statements. The Company
provides post-retirement benefits in the form of life insurance to its nonmanual
employees after retirement for life for employees whose employment began prior
to September 1, 1980. For employees hired after this date, the retiree life
insurance benefit terminates at age 70.
(E) 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 $8,700,000, $8,600,000 and $10,800,000 in 1992,
1993 and 1994, 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.
19
As of October 31, 1994, future minimum lease commitments under noncancelable
operating leases are as follows:
- ---------------------------------------------------------------
Years ending (in thousands of dollars)
- ---------------------------------------------------------------
1995 52,029
1996 45,486
1997 33,312
1998 13,743
1999 4,458
Thereafter through 2000 8,560
- ---------------------------------------------------------------
Total minimum lease commitments $ 157,588
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Rental expense for the years ended October 31, is summarized as follows:
- ------------------------------------------------------------------
(in thousands of dollars) 1992 1993 1994
- ------------------------------------------------------------------
Minimum rentals under
noncancelable leases $ 23,720 $ 26,565 $ 36,724
Contingent rentals 8,061 9,648 17,398
Short-term rental agreements 3,855 5,792 20,855
- ------------------------------------------------------------------
$ 35,636 $ 42,005 $ 74,977
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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, 2001. The
total redemption value of the shares outstanding at October 31 in an amount of
$6,400,000 is classified on the Company's balance sheet as redeemable cumulative
preferred stock. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, holders of the Series B Preferred Stock shall be
paid the redemption price plus all accrued dividends to the date of liquidation,
dissolution or winding up of affairs before any payment to other stockholders.
As discussed in Note 12, 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 released upon certain annual earnout
requirements.
Dividends of $128,000 will be due and payable each quarter and are
deductible from net income in determining net income per common share.
10. CAPITAL STOCK
On June 16, 1992, the Company's Board of Directors approved a two-for-one
split of the Company's common stock in the form of a 100% stock dividend for
shareholders of record as of July 15, 1992. A total of 4,226,701 shares of
common stock were issued in connection with the split. The stated par value of
each share was not changed from $.01. A total of $42,000 was reclassified from
the Company's additional paid in capital account to the Company's common stock
account. All share and per share amounts have been restated to retroactively
reflect the stock split.
In 1984, the Company adopted an executive stock option plan whereby 340,000
shares (adjusted for the stock split mentioned above) were reserved for grant
until March 20, 1994. Options which have been granted at the fair market value
of $11.44 to $17.44, are exercisable only when the option holders reach their
67th birthday and remain exercisable until 30 days after their actual retirement
date. Options which terminate without being exercised may be reissued. At
October 31, 1994, there were 6,000 shares exercisable.
Transactions under this plan, restated for the 2 for 1 stock split, are
summarized as follows:
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
Balance October 31, 1991 238,000 $11.44 - $17.44
Options terminated --
- ---------------------------------------------------------------
Balance October 31, 1992 238,000
Options exercised (6,000) $11.44
- ---------------------------------------------------------------
Balance October 31, 1993 232,000
Options terminated (3,000) $11.44
- ---------------------------------------------------------------
Balance October 31, 1994 229,000 $11.44 - $17.44
- ---------------------------------------------------------------
- ---------------------------------------------------------------
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
20
plan was amended to reserve an additional 500,000 shares. During 1988, 356,800
shares were granted at fair market value prices of $9.57 to $12.13 and became
exercisable at varying percentages from 1989 to 1993. During 1992, 296,000
additional shares were granted at a fair market price of $16.97 and are
exercisable at varying percentages from 1993 to 1997. During 1994, 440,500
additional shares were granted at a fair market price of $17.81 and $19.59.
Options which terminate without being exercised may be reissued.
Transactions under this plan, restated for the 2 for 1 stock split, are
summarized as follows:
- ---------------------------------------------------------------
Number of
Shares under Option Price
Option per Share
- ---------------------------------------------------------------
Balance October 31, 1991 266,960 $9.57 - $12.13
Shares granted 296,000 $16.97
Options exercised (43,290) $11.56 - $12.13
Options terminated (2,680) $12.13
- ---------------------------------------------------------------
Balance October 31, 1992 516,990
Options exercised (26,485) $11.56 - $16.97
Options terminated (6,640) $12.13 - $16.97
- ---------------------------------------------------------------
Balance October 31, 1993 483,865
Shares granted 440,500 $17.81 - $19.59
Options exercised (15,600) $12.13 - $16.97
Options terminated (26,400) $12.13 - $16.97
- ---------------------------------------------------------------
Balance October 31, 1994 882,365 $9.57 - $19.59
- ---------------------------------------------------------------
- ---------------------------------------------------------------
At October 31, 1994, there were 336,905 shares exercisable and 92,940 shares
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 1992, 1993 and 1994, 136,000, 232,000 and 255,000
shares of stock were issued under the plan for an aggregate purchase price of
$2,889,000, $3,362,000 and $3,849,000, respectively. At October 31, 1994,
652,339 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 the preferred shares has been issued.
On April 22, 1988, the Company distributed a dividend of one half of one
right for each outstanding share of common stock as adjusted to reflect the 2
for 1 split. 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, 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:
- -------------------------------------------------------------------
(in thousands of dollars) 1992 1993 1994
- -------------------------------------------------------------------
Current
Federal $ 6,665 $ 9,693 $ 9,621
State 1,644 2,325 1,992
Foreign 203 224 630
Deferred
Federal (75) (3,947) (2,111)
State (12) (699) (242)
- -------------------------------------------------------------------
$ 8,425 $ 7,596 $ 9,890
- -------------------------------------------------------------------
- -------------------------------------------------------------------
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
21
applying the U.S. statutory rates to pretax income from operations as a result
of the following for the years ended October 31:
- --------------------------------------------------------------------------
1992 1993 1994
- --------------------------------------------------------------------------
Statutory rate 34.0% 35.0% 35.0%
State and local taxes on income, net
of federal tax benefit 5.0% 5.2% 4.5%
Tax rate change on deferred tax assets
and liabilities -- (2.7)% --
Targeted job tax credits (3.2)% (2.0)% (2.6)%
Nondeductible expenses and other --
net 5.5% 2.0% 2.6%
- --------------------------------------------------------------------------
41.3% 37.5% 39.5%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
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:
- -----------------------------------------------------------------
(in thousands of dollars) 1993 1994
- -----------------------------------------------------------------
Deferred tax assets:
Self-insurance claims $ 22,335 $ 23,930
Bad debt allowance 1,528 1,480
Deferred and other compensation 2,259 2,847
State taxes 499 508
Other 182 419
- -----------------------------------------------------------------
Total deferred tax assets 26,803 29,184
Deferred tax liabilities:
Union pension contributions (2,058) (2,179)
Customer lists (153) (118)
Depreciation (325) (267)
- -----------------------------------------------------------------
Total deferred tax liabilities (2,536) (2,564)
- -----------------------------------------------------------------
Net deferred tax assets $ 24,267 $ 26,620
- -----------------------------------------------------------------
- -----------------------------------------------------------------
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 and customer lists. Most purchase agreements
provide for contingent payments based on the annual pretax income for subsequent
periods ranging from two 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 $3.3 million
in 1992, $24.1 million in 1993 and $7.1 million in 1994. Included in the 1993
amount is the redemption value of redeemable preferred stock of the Company of
$6,400,000.
On January 1, 1993, the Company's subsidiary, Ampco Auto Parks, Inc.,
acquired in a cash transaction, substantially all of the parking operations of
Metropolitan Parking Corporation, a San Francisco based company. In addition to
amounts paid at closing, the acquisition agreement provided for additional
payments over the subsequent five years based upon the operating income of
existing contracts. The Company also acquired substantially all of the parking
operations of System Parking effective September 1, 1993. The purchase price was
approximately $20 million, consisting of cash in the amount of $1,750,000,
assumption of net liabilities of $11,850,000, and the issuance of 6,400
redeemable preferred shares of the Company with a redemption value equal to the
fair market value of $1,000 per preferred share. The cost of the acquisition was
allocated on the basis of the estimated fair value of the assets acquired and
liabilities assumed. This allocation resulted in goodwill and customer lists of
approximately $18,860,000 and $1,557,000, respectively. The goodwill is being
amortized over 30 years and the customer list over 10 years, both under a
straight-line basis.
The Company acquired the janitorial operations of General Maintenance
Service Company, Inc. in Washington, D.C. on March 1, 1994. General Maintenance
provides janitorial services to major commercial buildings and institutions in
Washington, D.C., Maryland, and Virginia. At the time of acquisition by the
Company, General Maintenance reported annual revenues of approximately $18.9
million. 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.
13. DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
INVESTMENTS AND LONG-TERM RECEIVABLES
The category is composed of 18 separate financial contracts totaling
$4,643,000 and 10 nonfinancial instruments valued at $2,198,000. Contract values
are deemed to equal fair market value.
22
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Corporation for debt of the same remaining maturities. Fair value
of the interest rate swap agreement is the amount at which the agreement could
be settled based on estimates obtained from the bank.
The estimated fair values of the Company's financial instruments at October
31, 1994 are as follows:
- -------------------------------------------------------------------
Carrying Fair
(in thousands of dollars) Amount Value
- -------------------------------------------------------------------
Cash and cash equivalents $ 7,368 $ 7,368
Investments and long-term receivables 6,841 6,841
Long-term debt and interest rate swap 25,254 24,944
Mandatory redeemable preferred stock 6,400 6,400
- -------------------------------------------------------------------
- -------------------------------------------------------------------
23
14. QUARTERLY INFORMATION (UNAUDITED)
(in thousands, except earnings per share)
- -----------------------------------------------------------------------------------------------------------------------------
FISCAL QUARTER
--------------------------------------
OPERATIONS FIRST SECOND THIRD FOURTH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
1993
Revenues and other income $187,201 $188,667 $192,203 $205,241 $773,312
Gross profit 27,257 26,866 28,390 32,296 114,809
Net income 2,359 2,666 3,382 4,239 12,646
Net income per common share 0.28 0.31 0.39 .47 1.45
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
- -----------------------------------------------------------------------------------------------------------------------------
15. SEGMENT INFORMATION
(in thousands of dollars)
JANITORIAL AMTECH OTHER CONSOLIDATED
FOR THE YEAR ENDED OCTOBER 31, 1992 SERVICES SERVICES SERVICES CORPORATE ELIMINATIONS TOTALS
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and other income $ 445,300 $ 199,310 $ 112,532 $ 2,955 $ $ 760,097
Intersegment revenues 9,843 292 35 -- (10,170) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 455,143 $ 199,602 $ 112,567 $ 2,955 $ (10,170) $ 760,097
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 20,239 $ 6,540 $ 4,950 $ (9,251) $ $ 22,478
Interest, expense (46) (119) (7) (1,889) (2,061)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 20,193 $ 6,421 $ 4,943 $ (11,140) $ $ 20,417
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 94,989 $ 72,066 $ 30,021 $ 26,648 $ $ 223,724
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,074 $ 1,678 $ 830 $ 457 $ $ 5,039
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 691 $ 601 $ 303 $ -- $ $ 1,595
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,548 $ 1,502 $ 797 $ 378 $ $ 5,225
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and other income $ 442,241 $ 209,520 $ 121,053 $ 498 $ $ 773,312
Intersegment revenues 9,609 293 60 -- (9,962) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 451,850 $ 209,813 $ 121,113 $ 498 $ (9,962) $ 773,312
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 19,545 $ 9,111 $ 4,797 $ (11,047) $ $ 22,406
Interest, expense (45) (47) (5) (2,067) (2,164)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 19,500 $ 9,064 $ 4,792 $ (13,114) $ $ 20,242
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 99,128 $ 75,628 $ 64,545 $ 28,839 $ $ 268,140
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,059 $ 1,615 $ 963 $ 368 $ $ 5,005
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 763 $ 636 $ 754 $ -- $ $ 2,153
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,764 $ 2,020 $ 1,008 $ 395 $ $ 6,187
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and other income $ 481,604 $ 228,962 $ 173,707 $ 360 $ $ 884,633
Intersegment revenues 9,944 175 61 -- (10,180) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues $ 491,548 $ 229,137 $ 173,768 $ 360 $ (10,180) $ 884,633
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit $ 22,045 $ 10,817 $ 6,480 $ (10,824) $ $ 28,518
Interest, expense (36) (632) (10) (2,781) (3,459)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 22,009 $ 10,185 $ 6,470 $ (13,605) $ $ 25,059
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 111,869 $ 81,913 $ 71,418 $ 34,270 $ $ 299,470
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation expense $ 2,283 $ 1,723 $ 1,328 $ 409 $ $ 5,743
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization expense $ 1,298 $ 640 $ 1,619 $ -- $ $ 3,557
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 2,946 $ 1,987 $ 2,092 $ 1,514 $ $ 8,539
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
Intersegment revenues are recorded at prices negotiated between the entities.
24
SCHEDULE VIII
ABM Industries Incorporated
CONSOLIDATED VALUATION ACCOUNTS
For the Three Years Ended October 31, 1992, 1993 and 1994
(in thousands of dollars)
- --------------------------------------------------------------------------------
BALANCE CHARGES TO DEDUCTIONS
BEGINNING COSTS AND NET OF OTHER ADDITIONS BALANCE
OF YEAR EXPENSES RECOVERIES (REDUCTIONS) END OF YEAR
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
Years ended October 31:
1992 $ 2,331 $ 2,550 $ (2,075) -- $ 2,806
1993 2,806 2,187 (892) 4,101
1994 4,101 1,915 (1,949) 4,067
- ---------------------------------------------------------------------------------------------------------------------------
25
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 1995 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 1995 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 1995 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 1995 Annual Meeting of Stockholders.
26
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED
FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON
FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS FORM 10-K:
1. and 2. Consolidated Financial Statements and Consolidated Financial
Statement Schedule.
The following consolidated financial statements of ABM Industries
Incorporated and subsidiaries are included in Item 8:
Independent Auditors' Report
Consolidated balance sheets -- October 31, 1993 and 1994
Consolidated statements of income -- Years ended October 31, 1992, 1993
and 1994
Consolidated statements of stockholders' equity -- Years ended October
31, 1992, 1993 and 1994
Consolidated statements of cash flows -- Years ended October 31, 1992,
1993 and 1994
Notes to consolidated financial statements -- October 31, 1994.
The following consolidated financial statement schedule of ABM Industries
Incorporated and subsidiaries is included in Item 8.
Schedule VIII -- Consolidated Valuation Accounts for the Three Years Ended
October 31, 1992, 1993 and 1994.
All other schedules are omitted because they are not applicable or because
the required information is included in the consolidated financial statements or
the notes thereto.
The individual financial statements of the registrant's subsidiaries have
been omitted since the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements are wholly-owned
subsidiaries.
- --------------------------------------------------
Exhibit
Number Description
- ---------------------------------------------------------------
3.1 [k] Certificate of Incorporation, as amended.
3.2 [i] Restated Bylaws, as amended.
4.1 Credit Agreement, dated September 22, 1994, between Bank of America
National Trust and Savings Association and the Company.
10.2 [a]* 1985 Employee Stock Purchase Plan.
10.3 [b]* Supplemental Medical and Dental Plan.
10.4 [b]* 1984 Executive Stock Option Plan.
10.6 [f]* Consulting Agreement with R. David Anacker.
10.7 [f]* Executive Employment Agreement with Sydney J. Rosenberg.
10.9 [f]* Short Form Deed of Trust and Assignment of Rents (dated December 17, 1991)
between the Company and John F. Egan, together with the related Promissory
Note (dated January 1, 1992).
10.13 [c]* 1987 Stock Option Plan.
10.16 [d] Rights Agreement, dated as of April 11, 1988, between the Company and Bank
of America National Trust and Savings Association, as Rights Agent with
Chemical Trust Company of California as successor-in-interest to Bank of
America as Rights Agent.
10.19 [e]* Service Award Plan.
10.20 [f]* Executive Employment Agreement with William W. Steele.
10.21 [f]* Amended and Restated Retirement Plan for Outside Directors.
10.22 [f]* Amendment No. 1 to Service Award Plan.
10.23 [g]* Form of Outside Director Retirement Agreement (dated June 16, 1992).
10.24 [g]* Executive Employment Agreement with John F. Egan.
10.25 [g]* Executive Employment Agreement with
Jess. E. Benton, III.
10.27 [i] Guaranty of American Building Maintenance Industries, Inc.
10.28 [j]* Deferred Compensation Plan.
10.29 [j]* Form of Existing Executive Employment Agreement Other Than Those Named
Above.
10.30 * Executive Employment Agreement with Martinn H. Mandles, as amended by
Amendments One and Two.
10.31 * Amendment of Corporate Executive Employment Agreement with William W.
Steele.
10.32 * First and Second Amendments of Corporate Executive Employment Agreement
with John F. Egan.
10.33 * Amendment of Corporate Executive Employment Agreement with Sydney J.
Rosenberg.
10.34 * First and Second Amendments of Corporate Executive Employment Agreement
with Jess E. Benton, III.
10.35 * Form of Amendments of Corporate Executive Employment Agreements with Other
Than Those Named Above.
22.1 Subsidiaries of the Registrant.
24.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
<FN>
- ------------------------------
[a] Incorporated by reference to exhibit 4.1 of the Company's
Registration Statement on Form S-8 filed March 30, 1994.
[b] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year
ended October 31, 1984.
[c] Incorporated by reference to exhibit 4.1 of the Company's
Registration Statement on Form S-8 filed March 31, 1994.
[d] Incorporated by reference to exhibit 1 to the Company's
report on Form 8-K dated April 11, 1988.
[e] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year
ended October 31, 1990.
[f] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year
ended October 31, 1991.
27
[g] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's quarterly report on Form 10-Q dated July 31,
1992.
[h] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year
ended October 31, 1992.
[i] Incorporated by reference to the exhibit bearing the same
numeric reference which was filed as an exhibit to the
Company's quarterly report on Form 10-Q dated July 31,
1993.
[j] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's annual report on Form 10-K for the fiscal year
ended October 31, 1993.
[k] Incorporated by reference to the exhibit bearing the same
numeric description which was filed as an exhibit to the
Company's quarterly report on Form 10-Q dated April 30,
1994.
- ------------------------
* Management contract, compensatory plan or arrangement
(B) REPORTS ON FORM 8K:
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
28
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this
report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABM INDUSTRIES INCORPORATED
By: /s/ Sydney J. Rosenberg
--------------------------------------
Sydney J. Rosenberg
Chairman of the Board and Director
January 27, 1995
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been
signed below by the following persons on behalf
of the registrant and in the capacities and on
the dates indicated.
/s/ Sydney J. Rosenberg /s/ David H. Hebble
- -------------------------------------- --------------------------------------
Sydney J. Rosenberg David H. Hebble
Chairman of the Board and Director Corporate Vice President and
January 27, 1995 Chief Financial Officer
(Principal Financial Officer)
January 27, 1995
/s/ William W. Steele /s/ Hussain A. Khan
- -------------------------------------- --------------------------------------
William W. Steele, President Hussain A. Khan, Corporate Controller
Chief Executive Officer and Director (Principal Accounting Officer)
January 27, 1995 January 27, 1995
/s/ Maryellen B. Cattani /s/ Robert S. Dickerman
- -------------------------------------- --------------------------------------
Maryellen B. Cattani, Director Robert S. Dickerman, Director
January 27, 1995 January 27, 1995
/s/ John F. Egan /s/ Charles T. Horngren
- -------------------------------------- --------------------------------------
John F. Egan Charles T. Horngren, Director
Corporate Vice President and Director January 27, 1995
January 27, 1995
/s/ Felix M. Juda /s/ Martinn H. Mandles
- -------------------------------------- --------------------------------------
Felix M. Juda, Director Martinn H. Mandles
January 27, 1995 Executive Vice President
Chief Administrative Officer and
Director
January 27, 1995
/s/ Theodore Rosenberg /s/ William E. Walsh
- -------------------------------------- --------------------------------------
Theodore Rosenberg, Director William E. Walsh, Director
January 27, 1995 January 27, 1995
29