1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file Number 1-8929
ABM INDUSTRIES INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
160 PACIFIC AVENUE, SUITE 222, SAN FRANCISCO, CALIFORNIA 94111
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415/733-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding as of
June 6, 2000: 22,573,302.
2
ABM INDUSTRIES INCORPORATED
FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 2000
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
- ------ ----
Item 1 Condensed Consolidated Financial Statements......................... 2
Notes to the Condensed Consolidated
Financial Statements............................................ 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 10
Item 3 Qualitative and Quantitative Disclosures
About Market Risk................................................. 19
PART II OTHER INFORMATION
- -------
Item 4 Submission of Matters to a Vote of Stockholders..................... 20
Item 6 Exhibits and Reports on Form 8-K.................................... 20
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
- --------------------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
1999 2000
- --------------------------------------------------------------------------------------------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 2,139 $ 2,081
Accounts receivable, net 297,596 316,679
Inventories 23,296 24,814
Deferred income taxes 14,163 14,600
Prepaid expenses and other current assets 30,395 33,530
- --------------------------------------------------------------------------------------------
Total current assets 367,589 391,704
- --------------------------------------------------------------------------------------------
INVESTMENTS AND LONG-TERM RECEIVABLES 14,290 15,568
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 4,526 4,557
Transportation equipment 13,104 13,235
Machinery and other equipment 61,390 65,715
Leasehold improvements 14,425 14,328
- --------------------------------------------------------------------------------------------
93,445 97,835
Less accumulated depreciation and amortization 58,264 61,179
- --------------------------------------------------------------------------------------------
Property, plant and equipment, net 35,181 36,656
- --------------------------------------------------------------------------------------------
INTANGIBLE ASSETS - NET 105,583 109,578
DEFERRED INCOME TAXES 30,388 31,935
OTHER ASSETS 10,353 8,913
- --------------------------------------------------------------------------------------------
Total assets $563,384 $594,354
============================================================================================
(Continued)
2
4
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, APRIL 30,
1999 2000
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long-term debt $ 898 $ 904
Bank overdraft 4,967 18,544
Trade accounts payable 45,596 35,834
Income taxes payable 7,318 5,718
Accrued Liabilities:
Compensation 45,170 45,148
Taxes - other than income 16,505 17,492
Insurance claims 35,139 35,418
Other 27,717 28,337
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 183,310 187,395
Long-Term Debt (less current portion) 28,903 42,815
Retirement plans 19,294 21,158
Insurance claims 48,526 49,014
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 280,033 300,382
- -----------------------------------------------------------------------------------------------------------------------------
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000 _ _
shares authorized; none issued
Common stock, $.01 par value, 100,000,000 shares authorized;
22,407,000 and 22,526,000 shares issued and outstanding
at October 31, 1999 and April 30, 2000, respectively 224 225
Additional capital 93,336 93,725
Accumulated other comprehensive income (635) (603)
Retained earnings 184,026 194,225
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 276,951 287,572
- -----------------------------------------------------------------------------------------------------------------------------
$ 563,384 $ 594,354
=============================================================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
5
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
- --------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
1999 2000 1999 2000
- --------------------------------------------------------------------------------------------
REVENUES AND OTHER INCOME $398,291 $439,988 $790,122 $868,569
EXPENSES:
Operating Expenses and
Cost of Goods Sold 348,063 383,304 689,739 759,002
Selling, General and
Administrative 35,582 39,568 73,371 79,053
Interest 466 862 1,020 1,503
- --------------------------------------------------------------------------------------------
Total Expenses 384,111 423,734 764,130 839,558
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,180 16,254 25,992 29,011
INCOME TAXES 5,814 6,374 10,657 11,604
- --------------------------------------------------------------------------------------------
NET INCOME $ 8,366 $ 9,880 $ 15,335 $ 17,407
============================================================================================
NET INCOME PER COMMON SHARE
Basic $ 0.37 $ 0.43 $ 0.69 $ 0.77
Diluted $ 0.35 $ 0.41 $ 0.64 $ 0.73
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 21,963 22,442 21,840 22,352
Diluted 23,701 23,660 23,717 23,434
DIVIDENDS PER COMMON SHARE $ 0.14 $ 0.155 $ 0.28 $ 0.31
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
6
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 2000
(In thousands)
- --------------------------------------------------------------------------------------
1999 2000
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 782,211 $ 846,637
Other operating cash receipts 1,234 1,178
Interest received 388 251
Cash paid to suppliers and employees (749,576) (834,290)
Interest paid (1,245) (1,581)
Income taxes paid (12,458) (15,188)
- --------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 20,554 (2,993)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,038) (7,558)
Proceeds from sale of assets 585 563
Increase in investments and
long-term receivable (1,059) (1,278)
Intangible assets acquired (6,561) (7,889)
- --------------------------------------------------------------------------------------
Net cash used in investing activities (16,073) (16,162)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, including tax benefit 8,018 7,199
Common stock repurchased -- (8,390)
Dividends paid (6,473) (7,208)
Increase in cash overdraft 12,724 13,577
Increase in notes payable 55 --
Long-term borrowings 8,008 82,000
Repayments of long-term borrowings (26,779) (68,081)
- --------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (4,447) 19,097
- --------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34 (58)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,844 2,139
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,878 $ 2,081
======================================================================================
(Continued)
5
7
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 2000
(In thousands)
- --------------------------------------------------------------------------------
1999 2000
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income $ 15,335 $ 17,407
Adjustments:
Depreciation and amortization 10,049 11,174
Provision for bad debts 1,101 1,401
Gain on sale of assets (42) (179)
Increase in deferred income taxes (3,825) (1,984)
Increase in accounts receivable (8,379) (20,484)
Decrease (increase) in inventories 256 (1,518)
Increase in prepaid expenses and
other current assets (1,715) (3,135)
(Increase) decrease in other assets (870) 1,440
Increase (decrease) in income taxes payable 2,024 (1,600)
Increase in retirement plans accrual 1,812 1,864
Increase in insurance claims liability 538 767
Increase (decrease) in trade accounts
payable and other accrued liabilities 4,270 (8,146)
- --------------------------------------------------------------------------------
Total adjustments to net income 5,219 (20,400)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES $ 20,554 $ (2,993)
================================================================================
SUPPLEMENTAL DATA:
Non-cash investing activities:
Common stock issued for net assets of
business acquired $ 1,710 $ 1,581
================================================================================
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
8
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all material adjustments which are
necessary to present fairly ABM Industries Incorporated (the Company) financial
position as of April 30, 2000, and the results of operations and cash flows for
the six months then ended. These adjustments are of a normal, recurring nature.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Form 10-K filed for the fiscal year ended October 31,
1999 with the Securities and Exchange Commission.
2. NET INCOME PER COMMON SHARE
The Company has reported its earnings in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share. Basic net income per
common share, after the reduction for preferred stock dividends, is based on the
weighted average number of shares actually outstanding during the period.
Diluted net income per common share, after the reduction for preferred stock
dividends, is based on the weighted average number of shares outstanding during
the period, including dilutive securities equivalents.
THREE MONTHS ENDED APRIL 30,
1999 2000
------------ ------------
Net Income $ 8,366,000 $ 9,880,000
Preferred Stock Dividends (128,000) (128,000)
------------ ------------
$ 8,238,000 $ 9,752,000
============ ============
Common shares outstanding - basic 21,963,000 22,442,000
Effect of dilutive securities:
Stock options 1,601,000 1,095,000
Other 137,000 123,000
------------ ------------
Common shares outstanding - diluted 23,701,000 23,660,000
============ ============
7
9
SIX MONTHS ENDED APRIL 30,
1999 2000
------------ ------------
Net Income $ 15,335,000 $ 17,407,000
Preferred Stock Dividends (256,000) (256,000)
------------ ------------
$ 15,079,000 $ 17,151,000
============ ============
Common shares outstanding - basic 21,840,000 22,352,000
Effect of dilutive securities:
Stock options 1,735,000 959,000
Other 142,000 123,000
------------ ------------
Common shares outstanding - diluted 23,717,000 23,434,000
============ ============
For purposes of computing diluted net income per common share, weighted
average common share equivalents do not include stock options with an exercise
price that exceeds the average fair market value of the Company's common stock
for the period. For the six months ended April 30, 2000, options to purchase
approximately 1,197,000 shares of common stock at an average price of $31.22
were excluded from the computation. For the six months ended April 30, 1999,
options to purchase approximately 1,100,000 shares of common stock at an average
price of $31.77 were excluded from the computation.
3. COMPREHENSIVE INCOME
Other comprehensive income at October 31, 1999 and April 30, 2000
consists of foreign currency translation adjustments. Comprehensive income for
the three and six-month period ended April 30, 2000 approximated net income.
4. ACQUISITIONS
The Company acquired the operations and selected assets of five
businesses during the six months ended April 30, 2000. These business
combinations were accounted for under the purchase method of accounting. The
aggregate consideration paid for these acquisitions was $5,153,000. The
aggregate purchase price does not include payments of contingent consideration
based upon the future results of operations of the businesses acquired. As these
acquisitions were not significant, pro forma information is not included in
these financial statements.
8
10
5. SEGMENT INFORMATION
The Company's operations are grouped into nine industry segments or
divisions as defined under Statement of Financial Accounting Standards (SFAS)
No. 131. The results of operations from the Company's five operating divisions
that are reportable under SFAS 131 for the three months and six months ended
April 30, 2000, as compared to the three months and six months ended April 30,
1999, are more fully described below. Included in all other divisions are ABM
Facility Services, American Commercial Security, CommAir Mechanical Services,
and Easterday Janitorial Supply Company.
THREE MONTHS ENDED APRIL 30,
1999 2000
---------- ----------
(in thousands)
Revenues:
ABM Janitorial Services $ 228,527 $ 256,295
Ampco System Parking 41,210 42,198
ABM Engineering Services 37,275 37,725
Amtech Lighting Services 22,837 29,462
Amtech Elevator Services 23,536 27,950
All Other Divisions 44,728 46,290
Corporate 178 68
---------- ----------
Total Revenues $ 398,291 $ 439,988
========== ==========
Operating Profit:
ABM Janitorial Services $ 10,311 $ 13,436
Ampco System Parking 1,871 2,204
ABM Engineering Services 1,858 1,788
Amtech Lighting Services 1,671 2,181
Amtech Elevator Services 1,498 1,650
All Other Divisions 1,265 1,393
Corporate (3,828) (5,536)
---------- ----------
Total Operating Profit $ 14,646 $ 17,116
========== ==========
9
11
SIX MONTHS ENDED APRIL 30,
1999 2000
--------- ---------
(in thousands)
Revenues:
ABM Janitorial Services $ 455,071 $ 507,265
Ampco System Parking 79,793 82,074
ABM Engineering Services 75,816 76,858
Amtech Lighting Services 45,773 56,303
Amtech Elevator Services 44,472 53,442
All Other Divisions 88,676 92,471
Corporate 521 156
--------- ---------
Total Revenues $ 790,122 $ 868,569
========= =========
Operating Profit:
ABM Janitorial Services $ 20,807 $ 24,064
Ampco System Parking 3,504 3,904
ABM Engineering Services 3,828 3,675
Amtech Lighting Services 3,150 3,804
Amtech Elevator Services 2,584 2,786
All Other Divisions 2,859 2,254
Corporate (9,720) (9,973)
--------- ---------
Total Operating Profit $ 27,012 $ 30,514
========= =========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures, acquisitions and paying cash dividends, as well as funding the
Company's recent stock repurchase program. Management believes that funds from
these sources will remain available and adequately serve the Company's liquidity
needs. The Company has an unsecured revolving credit agreement with a syndicate
of U.S. banks that provides a $150 million line of credit expiring July 1, 2002.
At the Company's option, the credit facility provides interest at the prime rate
or IBOR+.35%. As of April 30, 2000, the total amount outstanding was
approximately $112 million, which was comprised of loans in the amount of $41
million and standby letters of credit of $71 million. This agreement requires
the Company to meet certain financial ratios, places some limitations on outside
10
12
borrowing and prohibits declaring or paying cash dividends exceeding 50% of the
Company's net income for any fiscal year. In addition, the Company has a loan
agreement with a major U.S. bank with a balance of $2.6 million at April 30,
2000. This loan bears interest at a fixed rate of 6.78% with annual payments of
principal, in varying amounts, and interest due each February 15 through 2003.
The Company's effective interest rate for all long-term debt borrowings for the
six months ended April 30, 2000 was 7.67%.
At April 30, 2000, working capital was $ 204.3 million, as compared to
$184.3 million at October 31, 1999.
During the six months ended April 30, 2000, net cash used in operating
activities amounted to $3.0 million, compared to net cash provided by operating
activities of $20.6 million in the same period of 1999. The difference primarily
resulted from an increase in accounts receivable, reflecting the higher volume
in sales and slower payments by some large customers, and the decrease in
accrued liabilities mostly due to timing of certain payments.
Net cash used in investing activities of $16.2 million in the six months
ended April 30, 2000, was comparable to the $16.1 million used in the same
period of the prior year.
Net cash provided by financing activities amounted to $19.1 million for
the first six months of 2000, compared to net cash used in financing activities
of $4.4 million in the first six months of the prior year. The increase was
primarily due to new borrowings, which were needed for the repurchase of common
stock as well as the increase in accounts receivable mentioned above.
ENVIRONMENTAL MATTERS
The nature of the Company's operations, primarily services, would not
ordinarily involve it in environmental contamination. However, the Company's
operations are subject to various federal, state and/or local laws regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment, such as discharge into soil, water and air, and
the generation, handling, storage, transportation and disposal of waste and
hazardous substances. These laws generally have the effect of increasing costs
and potential liabilities associated with the conduct of the Company's
operations, although historically they have not had a material adverse effect on
the
11
13
Company's financial position, cash flows or its results of operations.
The Company is currently involved in four proceedings relating to
environmental matters: one involving alleged potential soil and groundwater
contamination at a Company facility in Florida; one involving alleged potential
soil contamination at a former Company facility in Arizona; one involving
alleged potential soil and groundwater contamination of a parking garage
previously operated by the Company in Washington; and, one involving alleged
potential soil and groundwater contamination at a former dry-cleaning facility
leased by the Company in Nevada. While it is difficult to predict the ultimate
outcome of these matters, based on information currently available, management
believes that none of these matters, individually or in the aggregate, are
reasonably likely to have a material adverse effect on the Company's financial
position, cash flows, or its results of operations.
ACQUISITIONS
The operating results of businesses acquired during the six months ended
April 30, 2000, have been included in the accompanying condensed consolidated
financial statements from their respective dates of acquisition.
Effective November 1, 1999, the Company acquired the operations and
selected assets of NPS Corporation, a janitorial services company, with
customers located in Anchorage, Fairbanks and Juneau, Alaska. The terms included
a cash downpayment made at closing plus annual contingent payments based on
operating profits to be made over five years.
Effective December 1, 1999, the Company acquired the operations and
selected assets of Centre City Parking with customers located in Miami, Florida.
The terms included a cash downpayment made at closing plus annual contingent
payments based on operating profits to be made over five years.
Effective January 1, 2000, the Company acquired the operations and
selected assets of United Building Services, a janitorial services company, with
customers located in Long Beach, California. The terms included a cash
downpayment made at closing plus a final payment based on operating profits to
be made after one year.
12
14
Effective January 1, 2000, the Company acquired the operations and
selected assets of Dixie Lighting & Electrical, Inc., with customers located in
the greater Southeastern United States from Louisiana to Florida. The terms
included a cash downpayment made at closing plus annual contingent payments
based on operating profits to be made over five years.
Effective March 1, 2000, the Company acquired all issued and outstanding
stock of Allied Maintenance Services, Inc., a provider of janitorial,
landscaping, parking, parking lot re-sealing and paint-stripping, engineering
and related services, with customers located in Hawaii. The terms included a
cash downpayment made at closing plus annual contingent payments based on
operating profits to be made over five years.
The aggregate consideration paid for these acquisitions was $5,153,000.
GOVERNMENT INVESTIGATION
During fiscal year 1999, the Company announced that the Audit Committee
of its Board of Directors had conducted an internal investigation of alleged
questionable payments and related accounting practices in connection with
several janitorial service contracts. In an abundance of caution, the Company
referred the matter to an appropriate government agency, which reviewed the
information provided by the Company and determined not to take any action.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company. All information in the
discussion and references to the years and quarters are based on the Company's
fiscal year and second quarter which end on October 31 and April 30,
respectively.
THREE MONTHS ENDED APRIL 30, 2000 VS. THREE MONTHS ENDED APRIL 30, 1999
Revenues and other income (hereafter called revenues) increased 10% for
the second quarter of 2000 to $440 million compared to $398 million for the
second quarter of 1999. Higher Janitorial Division revenues contributed nearly
$28 million or 68% of the increase. For the quarter ended April 30, 2000,
13
15
revenues relating to acquisitions made during fiscal 1999 were approximately $7
million, or approximately 17% of the total revenue increase of $42 million.
As a percentage of revenues, operating expenses and cost of goods sold
were 87.1% for the second quarter of 2000, compared to 87.4% for the second
quarter of 1999. Consequently, as a percentage of revenues, the Company's gross
profit (revenue minus operating expenses and cost of goods sold) of 12.9% in the
second quarter of 2000 was slightly higher than the gross profit of 12.6% for
the second quarter of 1999. The increase in the gross profit margin was due
primarily to proportionally lower labor costs in the second quarter of 2000,
because the 2000 quarter had one less workday for which the Company had to pay
its hourly workers. In addition, the Company has attempted to increase prices,
where possible, to offset rising labor costs. However, several of the Company's
segments experienced competitive pressures that either reduced their prices or
prevented increases which, in turn, decreased profit margins.
Selling, general and administrative expenses for the second quarter of
2000 were $39.6 million compared to $35.6 million for the corresponding three
months of 1999. The $4 million increase in selling, general and administrative
expenses for the three months ended April 30, 2000, compared to the same period
in 1999, is primarily due to increased labor costs and the amortization of
goodwill. As a percentage of revenues, selling, general and administrative
expenses increased slightly to 9.0% for the three months ended April 30, 2000,
from 8.9% for the same period in 1999.
Interest expense was $862,000 for the second quarter of 2000 compared to
$466,000 for the same period in 1999, an increase of $396,000. This increase was
primarily due to higher average interest rates and borrowings during the second
quarter of 2000.
The pre-tax income for the second quarter of 2000 was $16.3 million
compared to $14.2 million, an increase of 15% over the same quarter of 1999.
The estimated effective income tax rate for the second quarter of 2000
was 39.2% compared to 41.0% for the second quarter of 1999. The lower tax rate
was mostly due to an increase in estimated federal tax credits and slightly
lower effective state income tax rates.
Net income for the second quarter of 2000 was $9.9 million, an increase
of 18% from the net income of $8.4 million for the
14
16
second quarter of 1999. Diluted net income per common share rose 17% to 41 cents
for the second quarter of 2000 compared to 35 cents for the same period in 1999.
SEGMENT INFORMATION
Revenues for ABM Janitorial Services (also known as American Building
Maintenance) increased by 12.2% during the second quarter of 2000 as compared to
the same quarter of 1999 as a result of increased business nationwide and a
number of acquisitions during the second half of 1999 and first quarter of 2000.
This Division's operating profits increased 30.3% during the second quarter when
compared to the same period last year. The increase in operating profits is
substantially higher than the increase in revenues because the current quarter
had one less workday compared to the second quarter of 1999. Management
estimates that one day of labor expense on this Division's fixed price contracts
is in excess of $1 million.
Ampco System Parking (also known as Ampco System Airport Parking and
Ampco Express Airport Parking) revenues increased by 2.4% while its operating
profits increased 17.8% during the second quarter of 2000 compared to the second
quarter of 1999. The increase in revenues was primarily due to newly acquired
parking contracts in California and small acquisitions in Florida and Texas
along with revenue growth of its off-airport parking operations. The increase in
operating profits resulted from additional business, but was disproportionately
higher because a number of leased lot contracts were converted to a management
fee basis. In management fee contracts, only the fee is recorded as revenues.
ABM Engineering Services' revenues increased slightly by 1.2% while its
operating profits decreased 3.8% for the second quarter of 2000 compared to the
same period in 1999. The small revenue increase was due primarily to strong
competition, which held down price increases, as well as a loss of work in the
Midwest. The decrease in operating profits is due to increased general and
administrative labor and computer related costs.
Amtech Lighting Services (also known as Sica Lighting & Electrical
Services in the Northeast) reported a 29.0% revenue increase and a 30.5%
operating profits increase during the second quarter of 2000 compared to the
same quarter of the prior year. The increase in revenues was primarily due to
obtaining a significant contract in New York City, which started November 1,
1999, increased business in both its Florida and Texas regions,
15
17
and the acquisition of Dixie Lighting & Electrical on January 1, 2000. Profit
margins increased slightly between quarters due to a reduction in labor and
material costs as a percentage of sales.
Revenues for Amtech Elevator Services increased by 18.8% in the second
quarter of 2000 compared to the same period in 1999 primarily due to new work
secured in Atlanta, Chicago and Denver. The Division reported a 10.2% increase
in operating profit for the second quarter compared to the corresponding quarter
of 1999. This proportionally smaller increase in operating profits can be
attributed primarily to higher operating expenses including insurance and
computer related expenses.
SIX MONTHS ENDED APRIL 30, 2000 VS. SIX MONTHS ENDED APRIL 30, 1999
Revenues for the first six months of 2000 were $869 million compared to
$790 million for the first six months of 1999, a 10% increase over the same
period of the prior year. Higher Janitorial revenues contributed $52 million or
66% of this $79 million increase. For the six months ended April 30, 2000,
revenues relating to acquisitions made during fiscal 1999 were approximately $14
million or 17% of the total revenue increase of $79 million.
As a percentage of revenues, operating expenses and cost of goods sold
were 87.4% for the first half of 2000, compared to 87.3% for the first half of
1999. Consequently, as a percentage of revenues, the Company's gross profit of
12.6% in the first six months of 2000 was slightly lower than the gross profit
of 12.7% for the first six months of 1999. The gross profit percentage declined
mostly due to higher labor and related costs. The Company will continue to
pursue price increases from its customers to help offset any rising costs.
Selling, general and administrative expenses for the first six months of
2000 were $79.1 million compared to $73.4 million for the corresponding six
months of 1999. As a percentage of revenues, selling, general and administrative
expenses decreased slightly, from 9.3% for the six months ended April 30, 1999,
to 9.1% for the same period in 2000, primarily due to costs that do not increase
at the same rate as sales. The $5.7 million increase in the dollar amount of
selling, general and administrative expenses for the six months ended April 30,
2000, compared to the same period in 1999, is primarily due to expenses related
to growth including amortization of goodwill and, to a
16
18
somewhat lesser extent, expenses associated with the installation of a new
enterprise resource plan.
Interest expense was $1,503,000 for the first six months of 2000 compared
to $1,020,000 for the same period in 1999, an increase of $483,000. This
increase was primarily due to higher weighted average borrowings and interest
rates during the first six months of 2000.
The pre-tax income for the first six months of 2000 was $29 million
compared to $26 million, an increase of nearly 12% over the same period in 1999.
The growth in pre-tax income outpaced revenue growth for the first half of 2000
as a result of lower selling, general and administrative expenses as a
percentage of revenues.
The estimated effective income tax rate for the first six months of 2000
was 40%, compared to 41% in the first six months of 1999. The lower tax rate was
due for the most part to an increase in the estimated federal tax credits and
slightly lower effective state income tax rates.
As a result, net income for the first six months of 2000 was $17.4
million, an increase of 14%, from the net income of $15.3 million for the same
period of 1999. Diluted net income per common share also rose 14% to 73 cents
for the first six months of 2000, compared to 64 cents for the same period in
1999.
SEGMENT INFORMATION
Revenues for ABM Janitorial Services increased by 11.5% during the first
six months of 2000 as compared to the same period of 1999 as a result of
increased business nationwide but particularly in the Mid-Atlantic, Midwest,
Northwest and Southeast regions and a number of acquisitions during the second
half of 1999 and first quarter of 2000. This Division's operating profits
increased 15.7% when compared to the same period in 1999. The increase in
operating profits is principally due to increased revenues. Operating profits
increased at a higher rate than revenues due primarily to lower labor and labor-
related costs including insurance as a percentage of revenues.
Ampco System Parking's revenues increased by 2.9%, while its operating
profits increased 11.4% during the first six months of 2000 compared to the
first six months of 1999. The increase in revenues was primarily due to newly
acquired parking contracts in California and small acquisitions in Florida and
Texas along with revenue growth of its off-airport parking operations, which
also
17
19
increased operating profits. The increase in operating profits resulted from
additional business, but was disproportionately higher because a number of
leased lot contracts were converted to a management fee basis. In management fee
contracts, only the fee is recorded as revenues.
ABM Engineering Services' revenues increased by 1.4%, while its operating
profits decreased 4.0% for the first six months of 2000 compared to the same
period in 1999. The small revenue increase was due primarily to strong
competition, which held down price increases, and a loss of work in the Midwest,
Northeast and Northern California. The decrease in operating profits is due to
increased general and administrative expense.
Amtech Lighting Services reported a 23.0% revenue increase, and operating
profits increased by 20.8% during the first six months of 2000 compared to the
same six months of the prior year. The increase in revenues and operating
profits was primarily due to obtaining a significant contract in New York City,
which started November 1, 1999, increased business in both its Florida and Texas
regions, and the acquisition of Dixie Lighting & Electrical on January 1, 2000.
Revenues for Amtech Elevator Services increased by 20.2% in the first six
months of 2000 compared to the same period in 1999 primarily due to new work
secured in Atlanta, Chicago, Denver and North Carolina. The Division reported a
7.8% increase in operating profit for the first six months compared to the
corresponding six months of 1999. This proportionally smaller increase in
operating profits can be attributed primarily to higher operating expenses
including insurance and computer related expenses.
SAFE HARBOR STATEMENT
Cautionary Safe Harbor Disclosure for Forward Looking Statements under
the Private Securities Litigation Reform Act of 1995: Because of the factors set
forth below, as well as other variables affecting the Company's operating
results, past financial performance, should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. The statements contained
herein which are not historical facts are forward-looking statements that are
subject to meaningful risks and uncertainties, including but not limited to: (1)
significant decreases in commercial real estate occupancy, resulting in reduced
demand and prices for building maintenance
18
20
and other facility services in the Company's major markets, (2) loss or
bankruptcy of one or more of the Company's major customers, which could
adversely affect the Company's ability to collect its accounts receivable or
recover its deferred costs, (3) major collective bargaining issues that may
cause loss of revenues or cost increases that non-union companies can use to
their advantage in gaining market share, (4) significant shortfalls in adding
additional customers in existing and new territories and markets, (5) a
protracted slowdown in the Company's acquisition program, (6) legislation or
other governmental action that severely impacts one or more of the Company's
lines of business, such as price controls that could restrict price increases,
or the unrecovered cost of any universal employer-paid health insurance, as well
as government investigations that adversely affect the Company, (7) reduction or
revocation of the Company's line of credit, which would increase interest
expense or the cost of capital, (8) cancellation or nonrenewal of the Company's
primary insurance policies, as many customers contract out services based on the
contractor's ability to provide adequate insurance coverage and limits, (9)
catastrophic uninsured or underinsured claims against the Company, the inability
of the Company's insurance carriers to pay otherwise insured claims, or
inadequacy in the Company's reserve for self-insured claims, (10) inability to
employ entry level personnel due to labor shortages, (11) resignation,
termination, death or disability of one or more of the Company's key executives,
which could adversely affect customer retention and day-to-day management of the
Company, and (12) other material factors that are disclosed from time to time in
the Company's public filings with the United States Securities and Exchange
Commission, such as reports on Forms 8-K, 10-K and 10-Q.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, as such, are not subject to
material foreign currency exchange rate risk. Although the Company has
outstanding debt and related interest expense, market risk in interest rate
exposure in the United States is currently not material.
19
21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
a) The Annual Meeting of Stockholders was held on March 21, 2000.
b) The following directors nominated by management were elected by a
vote of stockholders: Linda Chavez, Martinn H. Mandles, Theodore Rosenberg, and
William W. Steele. Mr. Mandles will serve for a term ending in the year 2002.
Ms. Chavez and Messrs. Rosenberg and Steele will serve for a term ending in the
year 2003.
The following directors remained in office: Maryellen B. Cattani,
Luke S. Helms, Charles T. Horngren, Henry L. Kotkins, Jr., and William E. Walsh.
c) Proposal 1 - Election of Directors
Against
or Broker
Nominee For Withheld Abstentions Nonvotes
Linda Chavez 18,273,084 261,191 0 0
Martinn H. Mandles 18,441,973 92,302 0 0
Theodore Rosenberg 18,363,361 170,914 0 0
William W. Steele 18,436,566 97,709 0 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 - Restated Certificate of Incorporation of ABM Industries
Incorporated, dated March 22, 2000
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended April 30, 2000.
20
22
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 14, 2000 /s/ David H. Hebble
- ------------- ----------------------------------------
Senior Vice President and
Chief Financial Officer,
Principal Financial Officer
21
23
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
Exhibit 3.1 Restated Certificate of Incorporation of ABM Industries Incorporated, dated March 22, 2000
Exhibit 27.1 Financial Data Schedule
22