SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1997
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file Number 1-8929
ABM INDUSTRIES INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 FREMONT STREET, 26TH FLOOR, SAN FRANCISCO, CALIFORNIA 94105
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 597-4500
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
- ----
Number of shares of Common Stock outstanding as of April 30, 1997: 20,140,935
----------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
- --------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
ASSETS: 1996 1997
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,567 $ 1,498
Accounts receivable, net 183,716 191,300
Inventories 16,492 20,134
Deferred income taxes 11,684 13,254
Prepaid expenses and other current assets 20,296 22,396
- --------------------------------------------------------------------------------
Total current assets 233,755 248,582
- --------------------------------------------------------------------------------
INVESTMENTS AND LONG-TERM RECEIVABLES 15,941 15,753
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 4,750 4,791
Transportation equipment 9,750 10,591
Machinery and other equipment 39,899 41,337
Leasehold improvements 8,202 8,941
- --------------------------------------------------------------------------------
62,601 65,660
Less accumulated depreciation and amortization (40,031) (42,256)
- --------------------------------------------------------------------------------
Property, plant and equipment, net 22,570 23,404
- --------------------------------------------------------------------------------
INTANGIBLE ASSETS, NET 76,366 82,828
DEFERRED INCOME TAXES 22,046 23,086
OTHER ASSETS 9,092 8,690
- --------------------------------------------------------------------------------
$ 379,770 $ 402,343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
continued)
1
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
- --------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1996 1997
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $902 $1,384
Bank overdraft 4,935 8,209
Trade accounts payable 27,091 25,549
Income taxes payable 1,864 1,993
Accrued Liabilities:
Compensation 27,862 29,766
Taxes - other than income 9,952 11,454
Insurance claims 23,256 24,516
Other 17,936 22,614
- --------------------------------------------------------------------------------
Total current liabilities 113,798 125,485
Long-Term Debt (less current portion) 33,664 23,076
Retirement plans 10,140 12,428
Insurance claims 51,475 54,032
- --------------------------------------------------------------------------------
Total Liabilities 209,077 215,021
- --------------------------------------------------------------------------------
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000
shares authorized; none issued - -
Common stock, $.01 par value, 28,000,000 shares
authorized; 19,489,000 and 20,140,000 shares
issued and outstanding at October 31, 1996
and April 30, 1997, respectively 195 201
Additional capital 48,548 58,748
Retained earnings 115,550 121,973
- --------------------------------------------------------------------------------
Total stockholders' equity 164,293 180,922
- --------------------------------------------------------------------------------
$379,770 $402,343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands except per share amounts)
- -------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30 APRIL 30
1996 1997 1996 1997
- -------------------------------------------------------------------------------------------------------------
REVENUES AND OTHER INCOME $ 262,069 $ 294,309 $ 516,470 $ 585,947
EXPENSES:
Operating Expenses and Cost of Goods Sold 226,779 253,255 447,236 506,006
Selling, General and Administrative 26,197 30,173 52,190 59,818
Interest 848 796 1,697 1,693
- -------------------------------------------------------------------------------------------------------------
Total Expenses 253,824 284,224 501,123 567,517
- -------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 8,245 10,085 15,347 18,430
INCOME TAXES 3,545 4,236 6,599 7,741
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,700 $ 5,849 $ 8,748 $ 10,689
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 0.23 $ 0.26 $ 0.43 $ 0.48
DIVIDENDS PER COMMON SHARE $ 0.0875 $ 0.10 $ 0.175 $ 0.20
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 20,116 21,598 19,956 21,507
Per share amounts have been restated to retroactively reflect the two-for-one
common stock split on July 15, 1996
3
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
(In thousands)
- --------------------------------------------------------------------------------
APRIL 30, APRIL 30,
1996 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 507,321 $ 583,433
Other operating cash receipts 1,068 748
Interest received 228 309
Cash paid to suppliers and employees (493,391) (553,546)
Interest paid (1,934) (1,889)
Income taxes paid (9,191) (10,222)
- --------------------------------------------------------------------------------
Net cash provided by operating
Activities 4,101 18,833
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,136) (5,102)
Proceeds from sale of assets 274 219
(Increase) decrease in investments and
long-term receivable (4,754) 188
Intangible assets acquired (2,497) (4,410)
- --------------------------------------------------------------------------------
Net cash used in investing activities (13,113) (9,105)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 3,782 4,106
Dividends paid (3,582) (4,266)
Increase (Decrease) in cash overdraft (3,234) 3,269
Increase in notes payable - 482
Long-term borrowings 61,000 23,622
Repayments of long-term borrowings (49,025) (37,050)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 8,941 (9,797)
- --------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (71) (69)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,840 1,567
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,769 $ 1,498
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
(In thousands)
- --------------------------------------------------------------------------------
APRIL 30, APRIL 30,
1996 1997
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $8,748 $10,689
Adjustments:
Depreciation and amortization 6,608 7,614
Provision for bad debts 853 880
Gain on sale of assets (187) (13)
Deferred income taxes (2,356) (2,610)
Increase in accounts and other receivables (8,208) (5,040)
(Increase)decrease in inventories and
Supplies 355 (3,306)
Increase in prepaid expenses (1,926) (2,019)
(Increase)decrease in other assets (1,259) 402
Increase(decrease) in income taxes payable (236) 129
Increase in retirement plans accrual 1,137 2,288
Increase in insurance claims liability 2,011 3,817
Increase(decrease) in accounts payable and
other accrued liabilities (1,439) 6,002
- --------------------------------------------------------------------------------
Total Adjustments to net income (4,647) 8,144
- --------------------------------------------------------------------------------
Net Cash Provided by Operating
Activities $4,101 $18,833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
ABM INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all material adjustments, which are necessary to
present fairly the Company's financial position as of April 30, 1997 and the
results of operations, and cash flows for the six months then ended. These
adjustments are of a normal, recurring nature.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Form 10K filed for
the fiscal year ended October 31, 1996 with the Securities and Exchange
Commission.
2. EARNINGS PER SHARE
NET INCOME PER COMMON SHARE: Net income per common and common equivalent
share, after the reduction for preferred stock dividends in the amount of
$256,000 during the six months ended April 30, 1997, is based on the weighted
average number of shares outstanding during the year and the common stock
equivalents that have a dilutive effect. Net income per common share assuming
full dilution is not significantly different than net income per share as
reported.
On June 18, 1996, the Company's Board of Directors approved a two-for-one stock
split, payable to shareholders of record as of the close of business on July 15,
1996. A total of 9,669,000 shares of common stock were issued in connection
with the stock split. All share and per share amounts have been restated to
retroactively reflect the common stock split.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures and acquisitions, and paying cash dividends. Management believes
that funds from these sources will remain available and adequately serve the
Company's liquidity needs. The Company has an unsecured revolving credit
agreement with a syndicate of U.S. banks. This agreement has a $125 million
line of credit expiring September 22, 1999. At the Company's option, the credit
facility provides interest at the prime rate or IBOR+.45%. As of April 30,
1997, the total amount outstanding was approximately $83 million, which was
comprised of loans in the amount of $18 million and standby letters of credit of
$65 million. This agreement requires the Company to meet certain financial
ratios and places some limitations on dividend payments and outside borrowing.
The Company is prohibited from declaring or paying cash dividends exceeding 50%
of its net income for any fiscal year. In February 1996, the Company entered
into a loan agreement with a major U.S. bank which provided a seven-year term
loan at a fixed interest rate of 6.78 %. Annual payments of principal and
interest in varying amounts are due February 15, 1998 through February 15, 2003
on the remaining balance of $4,777,054. The Company also has a 9.35% note
payable to an insurance company with a remaining amount of $1,272,000. Interest
is payable monthly and principal amounts of $636,000 are due annually through
October 1, 1998. The Company's effective interest rate for all borrowings for
the six months ended April 30, 1997 was 6.9%.
At April 30, 1997, working capital was $123.1 million, as compared to $120.0
million at October 31, 1996.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years had no material
impact on the financial statements of the Company. The Company attempts to
recover inflationary costs by increasing sales prices to the extent permitted by
contracts and competition.
ENVIRONMENTAL MATTERS
The nature of the Company's operations, primarily services, would not
ordinarily involve it in environmental contamination. However, the Company's
operations are subject to various federal, state and/or local laws regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment, such as discharge into soil, water and air, and
the generation, handling, storage, transportation and disposal of waste and
hazardous substances.
7
These laws generally have the effect of increasing costs and potential
liabilities associated with the conduct of the Company's operations, although
historically they have not had a material adverse effect on the Company's
financial position or its results of operations.
The Company is currently involved in three proceedings relating to
environmental matters: one involving alleged potential groundwater contamination
at a Company facility in Florida; one involving alleged soil contamination at a
former Company facility in Arizona; and one involving a claim under Proposition
65 in California relating to an alleged failure to post statutory warning signs
in Company operated parking garages. While it is difficult to predict the
ultimate outcome of these matters, based on information currently available,
management believes that none of these matters, individually or in the
aggregate, are reasonably likely to have a material adverse affect on the
Company's financial position or its results of operations.
ACQUISITIONS AND DISPOSITIONS
The operating results of businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition.
Effective November 1, 1996, the Company acquired the operations and net
assets of Sica Electrical and Maintenance Corp., of Ozone Park, New York. Sica
Electrical and Maintenance Corp. is an electrical and lighting maintenance
company which operates in the greater New York City metropolitan area, New
Jersey, up-state New York, Pennsylvania, and Connecticut. In connection with
this acquisition, the Company issued 348,323 of its common shares at the time of
closing and will make additional payments in common shares over a five-year
period based on the operating profits (income before taxes and interest) of the
acquired business. A maximum of 348,323 common shares may be issued in
connection with future payments. Effective November 1, 1996, the Company's
earnings per common share calculation includes the 696,646 shares issued and to
be issued under the contract with the sellers. The Company estimates that in
fiscal 1997 this acquisition will contribute approximately $15 million in
revenues.
Effective February 1, 1997, the Company acquired maintenance contracts and
selected assets of SMK Corp. of Las Vegas (also known as DeLuca Building
Maintenance), with customers located in Las Vegas, Nevada and the surrounding
area. The Company estimates that in fiscal 1997 this acquisition will
contribute approximately $1 million in revenues.
8
Effective March 1, 1997, the Company acquired HVAC (heating, ventilation, and
air conditioning) customer contracts, assets and certain liabilities from
Preferred Mechanical Services of Northridge, California. Most of the business
acquired was in Southern California, plus a few contracts in Las Vegas, Nevada.
The Company estimates that this acquisition will contribute approximately $4.3
million in revenues in fiscal year 1997.
Effective April 1, 1997, the Company acquired janitorial contracts and selected
assets of Geoserv of Phoenix, Inc. and Janus, Inc., with customers in the
metropolitan areas of Albuquerque, New Mexico, Phoenix and Tucson, Arizona. The
Company estimates that in fiscal 1997 this acquisition will contribute
approximately $3 million in revenues.
Effective May 1, 1997, the Company acquired the janitorial contracts and
selected assets of Polaris, Inc., with customers in the metropolitan areas of
Indianapolis, Indiana, and Columbus and Cincinnati, Ohio. The Company estimates
that this acquisition will contribute approximately $1.9 million in revenues in
fiscal year 1997.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company. All information in the
discussion and references to the years and quarters are based on the Company's
fiscal year and second quarter which end on October 31 and April 30,
respectively.
SIX MONTHS ENDED APRIL 30, 1997 VS. SIX MONTHS ENDED APRIL 30, 1996
Revenues and other income (hereafter called revenues) for the first six
months of fiscal year 1997 were $586 million compared to $516 million in 1996, a
13% increase over the same period of the prior year. This growth was
attributable to business and price increases as well as revenues generated from
acquisitions. For the six months ended April 30, 1997, the increase in revenues
relating to acquisitions made during fiscal years 1996 and 1997 was
approximately $25 million on a total revenue increase of $69 million.
Net income for the first six months of 1997 was $10,689,000 an increase of
22%, compared to the net income of $8,748,000 for the first six months of 1996.
Earnings per share rose 12% to 48 cents for the first six months of 1997
compared to 43 cents for the same period in 1996. The increase in earnings per
share was not proportional to the increase in net income due to the increased
average number of common and common equivalent shares outstanding. This
improvement in earnings is primarily the result of increased revenues as well as
control of costs in order to improve margins.
As a percentage of revenues, operating expenses and cost of goods sold decreased
to 86.4% for the first six months of 1997 compared to 86.6% in 1996.
Consequently, as a percentage of revenues, the Company's gross
9
profit (revenue minus operating expenses and cost of goods sold) was 13.6%
compared to the prior year's 13.4%. This improvement is partly attributable to
increased sales without a corresponding increase in insurance costs during 1997.
Selling, general and administrative expense for the first six months of
fiscal year 1997 was $59.8 million compared to $52.2 million for the
corresponding six months of fiscal year 1996. As a percentage of revenues,
selling, general and administrative expense increased slightly, from 10.1% for
the six months ended April 30, 1996, to 10.2% for the same period in 1997
primarily due to increased selling expenses associated with national accounts
and promotion of the ABM Family of Services, and to a lesser extent, expenses
associated with acquisitions.
Interest expense was $1,693,000 for the first six months of fiscal year
1997, only slightly lower than the 1996 interest expense of $1,697,000, due to a
small decrease in average interest rates compared to the prior year.
The pre-tax income for the first six months of 1997 was $18,430,000
compared to $15,347,000 in 1996, an increase of 20% over the corresponding
period in 1996. The growth in pre-tax income outpaced the revenue growth for
the first half of 1997 due primarily to lower operating expenses and cost of
goods sold as a percentage of revenue, particularly in the Elevator and Lighting
divisions.
The effective income tax rates for the first six months of fiscal years
1997 and 1996 were 42% and 43%, respectively. The lower rate in the current year
reflects an expected increase in tax credits.
The Company's divisions (consisting of one or more subsidiaries of the
Company), listed below, operate in three functionally oriented segments of the
building services industry--Janitorial Divisions, Public Service Divisions and
Technical Divisions.
PUBLIC
JANITORIAL SERVICE TECHNICAL
DIVISIONS DIVISIONS DIVISIONS
------------------------------------------------
American American ABM
Building Commercial Engineering
Maintenance Security Services
Services
Easterday Amtech
Janitorial Ampco System Elevator
Supply Parking Services
Amtech
Lighting
Services
CommAir
Mechanical
Services
10
The results of operations from the Company's three industry segments and
its eight operating divisions for the six months ended April 30, 1997, as
compared to the six months ended April 30, 1996, are more fully described below:
The Janitorial Divisions segment, which includes American Building
Maintenance (also known as ABM Janitorial Services) and Easterday
Janitorial Supply, accounted for approximately 56% of the Company's total
revenues for the first half of the 1996 fiscal year. Revenues of this
segment for the first six months of fiscal year 1997 were $330 million, an
increase of approximately $43 million, or 15% over the first six months of
fiscal 1996. The operating profits of this segment increased by 14% over
the comparable period in 1996. Revenues of AMERICAN BUILDING MAINTENANCE
increased 15% for the first six months of fiscal year 1997 compared to the
same period in 1996, both as a result of acquisitions in the Midwest and
Southwest Regions, and internal revenue growth throughout the majority of
its regions. This Division's operating profits increased 14% when compared
to the same period last year. The increase in operating profits is
proportionate to the revenue increase, and is attributable to the revenue
growth, as margins remained comparable. EASTERDAY JANITORIAL SUPPLY'S
revenue for the first six months increased by approximately 12% compared to
the same period in 1996 generally due to obtaining new customers,
particularly in the metropolitan areas of Los Angeles and San Francisco,
California, and Houston, Texas. Operating profits increased 23% due to the
increase in sales volume at a higher gross margin percentage.
The Public Service Divisions segment, which includes Ampco System Parking
and American Commercial Security Services (also known as "ACSS" and "ABM
Security Services"), accounted for approximately 20% of the Company's
revenues. Revenues of this segment for the first six months of 1997 were
approximately $117 million, an 8% increase over the same period in fiscal
year 1996. The operating profits of this segment increased by 7% as both
its divisions posted higher profits when compared to the first six months
of the prior year. AMPCO SYSTEM PARKING'S revenue increased by 5% and its
profits increased 11% during the first six months of fiscal year 1997. The
increase in revenues resulted primarily from increased airport business and
new parking locations in the South Central and Northwest regions. The
operating profit increase was due to increased sales and its airport
operations, which reported higher profit margins. AMERICAN COMMERCIAL
SECURITY reported an increase in revenues of 12% and its profits were up 2%
in the first six months of 1997 compared to the same period of 1996. The
revenue growth was largely due to the acquisition of CBM Industries in
Minneapolis in May of 1996 and new business, particularly in the South
Central and Southern California regions. The increase in operating income
did not keep pace with the increase in revenues during the first six months
of 1997 when compared to the same period in 1996, due to increased labor
costs related to the acquisition, and an increase in overtime throughout
the division.
11
The Company's Technical Services Divisions segment includes ABM Engineering
Services, Amtech Elevator Services, Amtech Lighting Services and CommAir
Mechanical Services. This segment reported revenues of $139 million, which
represent approximately 24% of the Company's revenues for the first six
months of fiscal year 1997. Revenues were up 15% compared to the same
period last year, as revenues increased in all its divisions. Operating
profit of this segment increased 56% compared to the first six months of
fiscal year 1996 due to dramatic increases in the Elevator and Lighting
divisions. ABM ENGINEERING'S revenues increased by 6% and it reported a 2%
increase in operating profits the first six months of 1997 compared to the
same period in 1996. Revenue increased in all its regions primarily as a
result of sales to new customers. The increase in operating profits
resulted from increased revenues, partially offset by a lower gross profit
percentage on fixed price contracts and a slight increase in selling,
general and administrative expenses as a percentage of revenues. Revenues
for AMTECH ELEVATOR were up by 14% for the first six months of fiscal year
1997 compared to the same period in 1996 largely due to growth in its
elevator service base, which also contributed to increased repair sales.
The Division's operating profit nearly tripled for the first six months
compared to the corresponding period in fiscal year 1996, primarily due to
the absence of losses reported by its Mexican subsidiary in the prior year,
and a decrease in insurance costs. As previously reported, the Mexican
subsidiary was sold May 31, 1996. A decrease in selling, general and
administrative expenses as a percentage of revenue also contributed to this
impressive increase. AMTECH LIGHTING posted a 25% increase in revenues due
primarily to the acquisition on November 1, 1996 as discussed. Operating
profits more than doubled during the first six months of fiscal year 1997
primarily because of the acquisition, and a decrease in selling, general
and administrative expenses as a percentage of revenue. Lower material
costs also contributed to the significant increase in operating profit.
COMMAIR MECHANICAL'S operating profits for the first six months of 1997
increased by 36%, on a revenue increase of 18%. Additional revenues
resulted from an increase in construction project work as well as the
acquisition of Preferred Mechanical Services as of March 1, 1997. The
relatively higher increase in operating profits for the first six months of
the current year was primarily a result of lower selling, general and
administrative expenses as a percentage of revenue.
THREE MONTHS ENDED APRIL 30, 1997 VS. THREE MONTHS ENDED APRIL 30, 1996
Revenues and other income for the second quarter of fiscal year 1997 were
$294 million compared to $262 million in 1996, a 12% increase over the same
quarter of the prior year. This growth was attributable to volume and price
increases as well as revenues generated from acquisitions.
12
Net income for the second quarter of 1997 was $5,849,000, an increase of
24%, compared to the net income of $4,700,000 for the second quarter of 1996.
Earnings per share rose 13% to 26 cents for the second quarter of 1997 compared
to 23 cents for the same period in 1996. The increase in earnings per share was
not proportional to the increase in net income due to the increased average
number of common and common equivalent shares outstanding. Cost controls
coupled with revenue growth enabled the company to realize improved earnings.
Operating expenses and cost of goods sold as a percentage of revenues
decreased from 86.5% for the second quarter of 1996 to 86.1% in 1997.
Consequently, as a percentage of revenues, the Company's gross profit increased
to 13.9% from the prior year's second quarter at 13.5% due to increased margins
in several of its divisions.
Selling, general and administrative expenses for the second quarter of
fiscal year 1997 were $30.2 million compared to $26.2 million in the second
quarter of 1996, an increase of $4 million or 15%, compared to the corresponding
period of fiscal year 1996. As a percentage of revenues, selling, general and
administrative expense increased from 10.0% for the three months ended April 30,
1996, to 10.3% for the same period in 1997 due to increased selling expenses
associated with national accounts and promotion of the ABM Family of Services.
Interest expense was $796,000 for the second quarter of fiscal year 1997
compared to $848,000 in 1996, a decrease of $52,000 or 6%, from the same period
of the prior fiscal year. The decrease in interest expense for the comparable
periods is due to lower average borrowings in 1997.
The effective income tax rate for the second three months of 1997 was 42%
compared to 43% in 1996. The lower rate in the current quarter was due to an
expected increase in tax credits.
The results of operations from the Company's three industry segments and
its eight operating divisions for the three months ended April 30, 1997, as
compared to the three months ended April 30, 1996, are more fully described
below:
Revenues of the Janitorial Divisions segment for the second quarter of
fiscal year 1997 were $164.8 million, an increase of approximately $18.8
million or 13%, over the second quarter of fiscal 1996, while its operating
profits increased by 15% over the comparable quarter of 1996. Janitorial
Divisions accounted for approximately 56% of the Company's revenues for the
current quarter. AMERICAN BUILDING MAINTENANCE'S revenues increased 13%
during the second quarter of fiscal year 1997 compared to the same quarter
of 1996, due to revenue growth throughout the majority of its regions,
particularly in the Southwest Region. The Division's operating profits
increased 14% when compared to the same period last year. In comparison
with the 13% revenue increase, a higher 14% increase in operating profits
is
13
due to lower insurance and selling, general and administrative expenses as
a percentage of revenue. EASTERDAY JANITORIAL SUPPLY'S second quarter
revenue increased by approximately 10% compared to the same quarter in 1996
generally due to an increase in new customers, particularly in the
metropolitan areas of Los Angeles and San Francisco, California, and
Houston, Texas. An increase of 24% in operating profits resulted from a
higher sales volume at a higher gross margin percentage.
Revenues of the Public Services Divisions segment for the second quarter of
1997 were approximately $58.5 million, a 7% increase over the same quarter
of fiscal year 1996. The Public Services Divisions segment accounted for
approximately 20% of the Company's revenues. The operating profits of this
segment were up by 24% due to increased operating profits of both its
American Commercial Security Services and Ampco System Parking divisions.
AMERICAN COMMERCIAL SECURITY reported an increase in revenues of 9% and its
profits were up 7% in the second quarter of 1997 compared to the same
period of 1996. The revenue growth was largely due to increased sales to
several large customers, and new customers in its South Central and
Southern California Regions. Benefits from revenue gains were partially
offset by competitive market conditions that eroded the gross margins
causing operating profits to grow a smaller percentage than sales. Higher
selling, general and administrative expenses necessitated by the business
growth also had a negative impact on the Division's profit. AMPCO SYSTEM
PARKING'S revenues increased by 6% while its profits increased 35% during
the second quarter of fiscal year 1997. The increase in revenues resulted
primarily from increased airport parking business and new parking locations
in the South Central and Northwest regions. The operating profit increase
was due to increased sales and its airport operations, which reported
higher profit margins.
The Company's Technical Divisions segment reported revenues of $70.8
million, which represent approximately 24% of the Company's revenues for
the second quarter of fiscal year 1997, an increase of approximately 15%
over the same quarter of last year. This segment's profit increased 51%
for the second quarter of 1997 when compared to the second quarter of
fiscal year 1996, with three divisions reporting substantial profit
increases. ABM ENGINEERING'S revenues increased by 5% and it reported a
12% increase in operating profits the second quarter of 1997 compared to
the same period in 1996. Revenue increases generally were due to gains in
new business in most regions. The increase in operating profits resulted
from increased revenues, an improved gross profit percentage and slightly
lower selling, general and administrative expenses as a percentage of
sales. Revenues for AMTECH ELEVATOR were up 13% for the second quarter of
fiscal year 1997 compared to the same quarter of 1996, largely due to
growth in its elevator service base, which also contributed to increased
repair sales. The Elevator Division's operating profit for the second
quarter of 1997 increased 74%
14
compared to the corresponding quarter of fiscal year 1996 primarily due the
sale of its Mexican subsidiary, which had been reporting losses, and
decreased insurance costs. A decrease in selling, general and
administrative expenses as a percentage of revenue also contributed to this
impressive increase. AMTECH LIGHTING reported an increase in revenues of
27%, due primarily to the acquisition mentioned previously. Operating
profit nearly doubled compared to the same period of the prior year,
primarily due to the acquisition. An increase in its gross margin
percentage due to lower material costs also contributed to the significant
increase in operating profit. COMMAIR MECHANICAL'S operating profits for
the second quarter of 1997 increased by 75% on a revenue increase of 19%.
Revenues increased during the second quarter of 1997 largely due to the
acquisition on March 1, 1997. Profit increased as a result of higher sales
with lower associated cost.
15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders.
a) The Annual Meeting of Stockholders was held on
March 18, 1997.
b) The following directors nominated by management were
elected by a vote of stockholders: Martinn H. Mandles, Sydney J. Rosenberg,
Theodore Rosenberg and William W. Steele.
The following directors remained in office: Maryellen B. Cattani, Esq., John F.
Egan, Luke S. Helms, Charles T. Horngren, Henry L. Kotkins, Jr., William E.
Walsh.
c) Proposal 1 - Election of Directors
Against
or Broker
Nominee: For Withheld Abstentions Nonvotes
Martinn H. Mandles 15,764,477 143,069 0 0
Sydney J. Rosenberg 15,772,463 135,083 0 0
Theodore. Rosenberg 15,638,791 268,755 0 0
William W. Steele 15,773,087 134,459 0 0
d) Proposal 2 - Approval of the Company's Long-Term Senior Executive Stock
Option Plan.
For: 10,521,101 Against: 3,527,855 Abstain: 549,891
Broker Nonvotes: 1,308,699
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.40 - 1996 ABM Industries Incorporated Long-Term Senior
Executive Stock Option Plan
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended April 30, 1997.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABM Industries Incorporated
June 13, 1997 /s/ David H. Hebble
- ------------- -----------------------------------------------
Vice President, Principal Financial Officer
17