UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM            TO

ABM INDUSTRIES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		94-1369354
(State of Incorporation)		(I.R.S. Employer Identification No.)

160 Pacific Avenue, Suite 222, San Francisco, California 94111
(Address of principal executive offices)(Zip Code)

415/733-4000

N/A

     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 the filing requirements for at least the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     Number of shares of common stock outstanding as of May 31, 2007: 49,746,144.

 

 

ABM INDUSTRIES INCORPORATED
FORM 10-Q
For the three and six months ended April 30, 2007

Table of Contents

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			32
PART II. OTHER INFORMATION			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 4. Submission of Matters to a Vote of Security Holders			38
Item 6. Exhibits			39
SIGNATURES			40
EXHIBIT INDEX			41
EXHIBIT 3.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		April 30,				October 31,
(in thousands, except share amounts)		2007				2006
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	98,685			$	134,001
Trade accounts receivable			383,198				392,018
Less: Allowances			(7,038	)			(8,041	)
Accounts receivable, net			376,160				383,977
Inventories			23,303				22,783
Deferred income taxes			44,971				43,945
Prepaid expenses and other current assets			68,172				47,035
Total current assets			611,291				631,741
Long-term receivables			12,633				14,097
Property, plant and equipment, at cost
Land and buildings			3,940				4,131
Transportation equipment			14,676				14,659
Machinery and other equipment			84,137				82,405
Leasehold improvements			15,514				17,827
			118,267				119,022
Less: Accumulated depreciation			(88,081	)			(86,837	)
Property, plant and equipment, net			30,186				32,185
Goodwill, net of accumulated amortization			253,794				247,888
Other intangible assets, at cost			43,484				39,431
Less: Accumulated amortization			(17,942	)			(15,550	)
Other intangible assets, net			25,542				23,881
Deferred income taxes			42,945				42,120
Other assets			29,788				24,362
Total assets		$	1,006,179			$	1,016,274

(Continued)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		April 30,				October 31,
(in thousands, except share amounts)		2007				2006
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable		$	58,899			$	66,336
Income taxes payable			1,209				36,712
Accrued liabilities
Compensation			72,784				78,673
Taxes — other than income			21,453				20,587
Insurance claims			65,182				66,364
Other			47,161				50,613
Total current liabilities			266,688				319,285
Retirement plans and other non-current liabilities			26,539				26,917
Insurance claims			131,149				128,825
Total liabilities			424,376				475,027
Stockholders’ equity
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 56,735,072 and 55,663,472 shares issued at April 30, 2007 and October 31, 2006, respectively			568				557
Additional paid-in capital			252,736				225,796
Accumulated other comprehensive income			228				149
Retained earnings			450,609				437,083
Cost of treasury stock (7,028,500 shares)			(122,338	)			(122,338	)
Total stockholders’ equity			581,803				541,247
Total liabilities and stockholders’ equity		$	1,006,179			$	1,016,274

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands, except per share data)		2007				2006				2007				2006
						(Unaudited)
Revenues
Sales and other income		$	697,851			$	660,108			$	1,401,400			$	1,326,709
Expenses
Operating expenses and cost of goods sold			619,313				592,322				1,249,418				1,198,498
Selling, general and administrative			51,601				49,530				110,214				102,423
Amortization of intangible assets			1,331				1,493				2,671				3,071
Interest			109				121				242				244
Total expenses			672,354				643,466				1,362,545				1,304,236
Income before income taxes			25,497				16,642				38,855				22,473
Income taxes			8,775				6,250				13,429				8,091
Net income		$	16,722			$	10,392			$	25,426			$	14,382
Net income per common share
Basic		$	0.34			$	0.21			$	0.52			$	0.29
Diluted		$	0.33			$	0.21			$	0.51			$	0.29
Average common and common equivalent shares
Basic			49,385				49,226				49,075				49,205
Diluted			50,754				49,812				50,245				49,949
Dividends declared per common share		$	0.12			$	0.11			$	0.24			$	0.22

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30

(in thousands)		2007				2006
		(Unaudited)
Cash flows from operating activities:
Net income		$	25,426			$	14,382
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			9,898				10,488
Share-based compensation expense			5,810				2,055
Provision for bad debt			430				852
Gain on sale of assets			(425	)			(635	)
(Increase) decrease in deferred income taxes			(1,851	)			949
Decrease (increase) in trade accounts receivable			7,387				(20,605	)
Increase in inventories			(520	)			(141	)
Increase in prepaid expenses and other current assets			(20,553	)			(6,766	)
Increase in other assets and long-term receivables			(3,970	)			(1,007	)
(Decrease) increase in income taxes			(35,503	)			5,126
Decrease in retirement plans and other non-current liabilities			(378	)			(1,034	)
Increase in insurance claims			1,142				8,931
Decrease in trade accounts payable and other accrued liabilities			(15,858	)			(10,143	)
Total adjustments to net income			(54,391	)			(11,930	)
Net cash (used in) provided by operating activities			(28,965	)			2,452
Cash flows from investing activities:
Additions to property, plant and equipment			(7,103	)			(8,354	)
Proceeds from sale of assets			2,088				1,394
Purchase of businesses			(10,086	)			(8,564	)
Net cash used in investing activities			(15,101	)			(15,524	)
Cash flows from financing activities:
Common stock issued			20,568				6,057
Common stock purchases			—				(13,942	)
Dividends paid			(11,818	)			(10,830	)
Net cash provided by (used in) financing activities			8,750				(18,715	)
Net decrease in cash and cash equivalents			(35,316	)			(31,787	)
Cash and cash equivalents at beginning of period			134,001				56,793
Cash and cash equivalents at end of period		$	98,685			$	25,006
Supplemental Data:
Cash paid for income taxes		$	47,120			$	1,526
Tax benefit from exercise of options		$	3,663			$	477
Cash received from exercise of options		$	16,905			$	5,580
Non-cash investing activities:
Common stock issued for business acquired		$	491			$	—

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments necessary to present fairly ABM Industries Incorporated (ABM) and subsidiaries’ (the Company) financial position as of April 30, 2007, the results of operations for the three and six months then ended, and cash flows for the six months then ended. These adjustments are of a normal, recurring nature, except as otherwise noted. All information in the Notes to Consolidated Financial Statements and references to the years are based on the Company’s fiscal year which ends on October 31 and the three-month and six-month periods which end on April 30.

     The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. These estimates are based on information available as of the date of these financial statements. Actual results could differ materially from those estimates.

     The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and the notes thereto included in the Company’s Form 10-K Annual Report for the fiscal year ended October 31, 2006, as filed with the Securities and Exchange Commission (SEC).

2. Adoption of a New Accounting Standard

     In June 2006, the Financial Accounting Standards Board (FASB) issued Emerging Issues Task Force (EITF) Issue No. 06-3 (EITF 06-3), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-3 requires companies to disclose the presentation of any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer (e.g., sales and use tax) as either gross or net in the accounting policies included in the notes to the financial statements. EITF 06-3 became effective beginning in the second quarter of 2007. The Company continues to report revenues net of sales and use tax imposed on the related transaction.

3. Net Income per Common Share

     The Company has reported its earnings in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share.” Basic net income per common share is based on the weighted average number of shares outstanding during the period. Diluted net income per common share is based on the weighted average number of shares outstanding during the period, including common stock equivalents. Stock options and restricted stock units account for the difference between basic average common shares outstanding and diluted average common shares outstanding. Performance shares do not currently have an effect on the diluted average common shares outstanding. The calculation of net income per common share was as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands, except per share data)		2007				2006				2007				2006
Net income available to common stockholders		$	16,722			$	10,392			$	25,426			$	14,382
Average common shares outstanding — Basic			49,385				49,226				49,075				49,205
Effect of dilutive securities:
Stock options			1,289				586				1,111				744
Restricted stock units			80				—				59				—
Average common shares outstanding — Diluted			50,754				49,812				50,245				49,949
Net income per common share
Basic		$	0.34			$	0.21			$	0.52			$	0.29
Diluted		$	0.33			$	0.21			$	0.51			$	0.29

     The diluted net income per common share excludes the anti-dilutive effects of options to purchase 92,682 and 2,457,261 common shares for the three months ended April 30, 2007 and 2006, respectively, and 89,753 restricted stock units for the three months ended April 30, 2007.

     The diluted net income per common share excludes the anti-dilutive effects of options to purchase 425,638 and 2,034,061 common shares for the six months ended April 30, 2007 and 2006, respectively, and 44,877 restricted stock units for the six months ended April 30, 2007.

4. Share-Based Compensation Plans

     The following tables show the activity under the Company’s share-based compensation plans.

Options

										Weighted-
						Weighted-				average				Aggregate
		Number of				average				remaining				intrinsic
		shares				exercise price				contractual term				value
		(in thousands)				per share				(in years)				(in thousands)
Outstanding at October 31, 2006			5,712			$	16.09
Granted			93				25.71
Exercised			925				14.60
Forfeited or expired			146				17.73
Outstanding at April 30, 2007			4,734			$	16.52				6.26			$	54,986
Exercisable at April 30, 2007			2,732			$	16.08				5.02			$	32,948

Restricted Stock Units

		Number of				Weighted-average
		shares				grant date fair value
		(in thousands)				per share
Outstanding at October 31, 2006			232			$	18.71
Granted			91				26.06
Converted from Director Retirement Plan			28				27.00
Issued			—				—
Forfeited			8				19.40
Outstanding at April 30, 2007			343			$	21.31
Vested at April 30, 2007			28			$	27.00

Performance Shares

		Number of				Weighted-average
		shares				grant date fair value
		(in thousands)				per share
Outstanding at October 31, 2006			125			$	18.71
Granted			32				25.82
Issued			—				—
Forfeited			1				18.71
Outstanding at April 30, 2007			156			$	20.19

None of the performance shares had vested at April 30, 2007.

Share-Based Compensation

     The Company recognized share-based compensation expense as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands, except per share data)		2007				2006				2007				2006
Share-based compensation expense recognized in selling, general and administrative expenses		$	2,847			$	895			$	5,810			$	2,055
Income tax benefit			1,080				159				2,236				325
Total share-based compensation expense after income taxes		$	1,767			$	736			$	3,574			$	1,730
Total share-based compensation expense after income taxes — per common share
Basic		$	0.04			$	0.01			$	0.07			$	0.04
Diluted		$	0.03			$	0.01			$	0.07			$	0.03

     Share-based compensation expense in the three and six months ended April 30, 2007 included $1.9 million and $3.9 million, respectively, of expense attributable to the accelerated vesting of stock options under the Price-Vested Performance Stock Option Plans. When ABM’s stock price achieved $22.50 and $23.00 target prices for ten trading days within a 30 consecutive trading day period during the first quarter of 2007, options for 481,638 shares vested in full. When ABM’s stock price achieved $25.00 and $26.00 target prices for ten trading days within a 30 consecutive trading day period during the second quarter of 2007, options for 452,566 shares vested in full.

     Share-based compensation expense of $0.3 million and $0.8 million associated with the Employee Stock Purchase Plan (ESPP) was recognized in the three and six months ended April 30, 2006, respectively. Because of changes to the ESPP effective May 1, 2006, the value of the awards is no

longer treated as share-based compensation. As a result, no share-based compensation expense associated with the ESPP was recognized in the three and six months ended April 30, 2007.

     The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option valuation model. The Company estimates forfeiture rates based on historical data and adjusts the rates annually or as needed. The adjustment of the forfeiture rate may result in a cumulative adjustment in any period the forfeiture rate estimate is changed. Adjustments to the forfeiture rate did not result in material adjustments to share-based compensation expense in the first six months of 2007.

     The weighted average assumptions used in the option valuation model for the three and six months ended April 30, 2007 and 2006 are shown in the table below:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
		2007				2006 *				2007				2006
Expected term from the date of grant		5.2 years					—			5.2 years				6.7 years
Expected stock price volatility			25.3	%			—				25.3	%			26.3	%
Expected dividend yield			2.1	%			—				2.1	%			2.1	%
Risk-free interest rate			4.4	%			—				4.4	%			4.4	%
Weighted average fair value of grants		$	6.36				—			$	6.35			$	5.67

5. Parking Revenue Presentation

     The Company’s Parking segment reports both revenues and expenses recognized, in equal amounts, for costs directly reimbursed from its managed parking lot clients in accordance with EITF Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred.” Parking sales related solely to the reimbursement of expenses totaled $68.0 million and $62.8 million for the three months ended April 30, 2007 and 2006, respectively, and $139.2 million and $126.9 million for the six months ended April 30, 2007 and 2006, respectively.

6. Insurance

     The Company self-insures certain insurable risks such as general liability, automobile, property damage, and workers’ compensation. Commercial policies are obtained to provide for $150.0 million of coverage for certain risk exposures above the self-insured retention limits (i.e., deductibles). For claims incurred after November 1, 2002, substantially all of the self-insured retentions increased from $0.5 million per occurrence (inclusive of legal fees) to $1.0 million per occurrence (exclusive of legal fees) except for California workers’ compensation insurance which increased to $2.0 million per occurrence from April 14, 2003 to April 14, 2005, when it returned to $1.0 million per occurrence, plus an additional $1.0 million annually in the aggregate.

     The Company periodically evaluates its estimated claim costs and liabilities and accrues self-insurance reserves to its best estimate. Management also monitors new claims and claim development to assess the adequacy of the insurance reserves. The estimated future charge is intended to reflect the recent experience and trends. Trend analysis is complex and highly subjective. The interpretation of trends requires the knowledge of all factors affecting the trends that may or may not be reflective of adverse developments (e.g., changes in regulatory requirements and changes in reserving methodology). If the trends suggest that the frequency or severity of claims incurred has increased, the Company might be required to record additional expenses for self-insurance liabilities. Additionally, the Company uses third party service providers to administer its claims and the performance of the service providers and transfers between administrators can impact the cost of claims and accordingly the amounts reflected in insurance reserves. A January 31, 2007 evaluation covering substantially all of the Company’s self-insurance reserves showed favorable developments in the Company’s reserves for 2006 and prior years’

workers’ compensation, general liability and auto liability claims, amounting to an aggregate $4.2 million benefit. The benefit was recorded in Corporate. The total estimated liability for claims incurred at April 30, 2007 and October 31, 2006 was $196.3 million and $195.2 million, respectively.

     In addition to using its evaluations to establish levels of self-insurance reserves, the Company uses these evaluations to develop insurance rates for each operation, which are expressed per $100 of exposure (labor and revenue). These rates become a factor in pricing by the regions/segments and in determining the operating profits of each segment.

     In connection with certain self-insurance programs, the Company had standby letters of credit at April 30, 2007 and October 31, 2006 supporting estimated unpaid liabilities in the amounts of $102.3 million and $93.5 million, respectively.

7. Goodwill and Other Intangibles

     Goodwill. The changes in the carrying amount of goodwill for the six months ended April 30, 2007 were as follows:

						Goodwill Related to
						Initial				Contingent
		Balance as of				Payments for				Amounts				Balance as of
(in thousands)		October 31, 2006				Acquisitions				and Other				April 30, 2007
Janitorial		$	153,890			$	—			$	2,742			$	156,632
Parking			30,180				2,671				—				32,851
Security			43,642				—				493				44,135
Engineering			2,174				—				—				2,174
Lighting			18,002				—				—				18,002
Total		$	247,888			$	2,671			$	3,235			$	253,794

     Of the $253.8 million carrying amount of goodwill as of April 30, 2007, $45.3 million was not amortizable for income tax purposes.

     Other Intangibles. The changes in the gross carrying amount and accumulated amortization of intangibles other than goodwill for the six months ended April 30, 2007 were as follows:

		Gross Carrying Amount																Accumulated Amortization
		October 31,								Retirements				April 30				October 31,								Retirements				April 30
(in thousands)		2006				Additions				and Other				2007				2006				Additions				and Other				2007
Customer contracts and related relationships		$	33,713			$	3,741			$	—			$	37,454			$	(12,281	)		$	(2,303	)		$	—			$	(14,584	)
Trademarks and trade names			3,050				800				—				3,850				(1,767	)			(277	)			—				(2,044	)
Other (contract rights, etc.)			2,668				—				(488	)			2,180				(1,502	)			(91	)			279				(1,314	)
Total		$	39,431			$	4,541			$	(488	)		$	43,484			$	(15,550	)		$	(2,671	)		$	279			$	(17,942	)

     The weighted average remaining lives as of April 30, 2007 and the amortization expense for the three and six months ended April 30, 2007 and 2006 of intangibles other than goodwill, as well as the estimated amortization expense for such intangibles for each of the five succeeding fiscal years are as follows:

		Weighted
		Average				Amortization Expense																Estimated Amortization Expense
		Remaining				Three Months Ended								Six Months Ended								Years Ending
		Life				April 30,								April 30,								October 31,
($ in thousands)		(Years)				2007				2006				2007				2006				2008				2009				2010				2011				2012
Customer contracts and related relationships			9.3			$	1,147			$	1,221			$	2,303			$	2,406			$	4,430			$	3,820			$	3,209			$	2,599			$	2,047
Trademarks and trade names			5.4				142				135				277				270				620				282				80				80				80
Other (contract rights, etc.)			6.9				42				137				91				395				163				146				116				116				97
Total			8.9			$	1,331			$	1,493			$	2,671			$	3,071			$	5,213			$	4,248			$	3,405			$	2,795			$	2,224

     The customer relationship intangible assets are being amortized using the sum-of-the-years-digits method over their useful lives consistent with the estimated useful life considerations used in the determination of their fair values. The accelerated method of amortization reflects the pattern in which the economic benefits of the customer relationship intangible assets are expected to be realized. Trademarks and trade names are being amortized over their useful lives using the straight-line method. Other intangible assets, consisting principally of contract rights, are being amortized over the contract periods using the straight-line method.

8. Acquisitions

     Acquisitions have been accounted for using the purchase method of accounting. The operating results generated by 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 (including contingent amounts) over fair value of the net tangible and intangible assets acquired is included in goodwill. Most purchase agreements provide for initial payments and contingent payments based on the annual pre-tax income or other financial parameters for subsequent periods ranging generally from two to five years.

     Payments for acquisitions, including initial amounts and contingent amounts due on earlier acquisitions, were $10.6 million and $8.6 million in the six months ended April 30, 2007 and 2006, respectively. Of those payment amounts, $3.5 million and $3.1 million were the contingent amounts paid in the six months ended April 30, 2007 and 2006, respectively. All payments were made in cash except for one contingent payment of $0.5 million that was settled with the issuance of 26,459 shares of ABM’s common stock in the six months ended April 30, 2007.

     The Company made the following acquisition during the six months ended April 30, 2007:

     On April 2, 2007, the Company acquired substantially all of the operating assets of HealthCare Parking Systems of America, Inc., a provider of healthcare-related parking services based in Tampa, Florida, for $7.1 million in cash. In addition, $4.7 million is expected to be paid based on the financial performance of the acquired business over the next three years. If certain growth thresholds are achieved, additional payments will be required in years four and five. With annual revenues in excess of $26.0 million, HealthCare Parking Systems of America, Inc. is a provider of premium parking management services exclusively to hospitals, health centers, and medical office buildings across the United States. Of the total initial payment, $3.5 million was initially allocated to customer relationship intangible assets (amortized over a useful life of 10 years under the sum-of-the-year-digits method), $0.8 million to trademarks intangible assets (amortized over a useful life of 10 years under the straight-line method), $2.7 million to goodwill and $0.1 million to other assets. The final purchase accounting for this acquisition is expected to be completed in the third quarter of 2007.

     The Company made the following acquisitions during the six months ended April 30, 2006:

     On November 1, 2005, the Company acquired substantially all of the operating assets of Brandywine Building Services, Inc., a facility services company based in Wilmington, Delaware, for approximately $3.6 million in cash. In the six months ended April 30, 2007, a contingent payment of $0.6 million was made, bringing the total purchase price paid to date to $4.2 million. Additional cash consideration of approximately $1.8 million is expected to be paid based on the financial performance of the acquired business over the next three years. With annual revenues in excess of $9.0 million, Brandywine Building Services, Inc. was a provider of commercial office cleaning and specialty cleaning services throughout Delaware, southeast Pennsylvania and south New Jersey. Of the total initial payment, $3.0 million was allocated to customer relationship intangible assets (amortized over a useful life of 14 years under the sum-of-the-year-digits method), $0.5 million to goodwill and $0.1 million to other assets. The contingent payment was allocated to goodwill.

     On November 27, 2005, the Company acquired substantially all of the operating assets of Fargo Security, Inc., a security guard services company based in Miami, Florida, for an initial payment of approximately $1.2 million in cash plus an additional payment of $0.4 million based on the revenue retained by the acquired business over the 90 days following the date of acquisition. With annual revenues in excess of $6.5 million, Fargo Security, Inc. was a provider of contract security guard services throughout the Miami metropolitan area. Of the total initial payment, $1.0 million was allocated to customer relationship intangible assets (amortized over a useful life of five years under the sum-of-the-year-digits method), and $0.2 million to goodwill. The final contingent payment of $0.4 million made in 2006 was allocated to goodwill.

     On December 11, 2005, the Company acquired substantially all of the operating assets of MWS Management, Inc., dba Protector Security Services, a security guard services company based in St. Louis, Missouri, for an initial payment of approximately $0.6 million in cash plus an additional payment of $0.3 million based on the revenue retained by the acquired business over the 90 days following the date of acquisition. With annual revenues in excess of $2.6 million, Protector Security Services was a provider of contract security guard services throughout the St. Louis metropolitan area. Of the total initial payment, $0.6 million was allocated to customer relationship intangible asset (amortized over a useful life of six years under the sum-of-the-year-digits method). The final contingent payment of $0.3 million made in 2006 was allocated to goodwill.

9. Line of Credit Facility

     ABM has a $300 million syndicated line of credit scheduled to expire in May 2010. No compensating balances are required under the facility and the interest rate is determined at the time of borrowing based on the London Interbank Offered Rate (LIBOR) plus a spread of 0.375% to 1.125% or, for overnight borrowings, at the prime rate or, for overnight to one week, at the Interbank Offered Rate (IBOR) plus a spread of 0.375% to 1.125%. The spreads for LIBOR and IBOR borrowings are based on the Company’s leverage ratio. The facility calls for a non-use fee payable quarterly, in arrears, of 0.100%, based on the average daily unused portion. For purposes of this calculation, irrevocable standby letters of credit issued primarily in conjunction with the Company’s self-insurance program plus cash borrowings are considered to be outstanding amounts. As of April 30, 2007 and October 31, 2006, the total outstanding amounts under the facility were $107.3 million and $98.7 million, respectively, in the form of standby letters of credit.

     The facility includes usual and customary covenants for a credit facility of this type, including covenants limiting liens, dispositions, fundamental changes, investments, indebtedness, and certain transactions and payments. In addition, the facility also requires that the Company satisfy three financial covenants: (1) a fixed charge coverage ratio greater than or equal to 1.50 to 1.0 at fiscal quarter-end; (2) a leverage ratio of less than or equal to 3.25 to 1.0 at fiscal quarter-end; and (3) consolidated net worth greater than or equal to the sum of (i) $341.9 million, (ii) an amount equal to 50% of the consolidated net income earned in each full fiscal quarter ending after May 25, 2005 (with no deduction for a net loss in any such fiscal quarter) and (iii) an amount equal to 100% of the aggregate increases in stockholders’ equity of ABM after May 25, 2005 by reason of the issuance and sale of capital stock or other

equity interests of ABM, including upon any conversion of debt securities of ABM into such capital stock or other equity interests, but excluding by reason of the issuance and sale of capital stock pursuant to the Company’s ESPP, employee stock option plans and similar programs. The Company is currently in compliance with all covenants.

10. Comprehensive Income

     Comprehensive income consists of net income and other related gains and losses affecting stockholders’ equity that, under generally accepted accounting principles, are excluded from net income. For the Company, such other comprehensive income items consist of unrealized foreign currency translation gains and losses. The Company’s other comprehensive income was $0.4 million and $0.2 million for the three months ended April 30, 2007 and 2006, respectively. Comprehensive income for the three months ended April 30, 2007 and 2006 was $17.1 million and $10.6 million, respectively. The Company’s other comprehensive income was $0.1 million and $0.3 million for the six months ended April 30, 2007 and 2006, respectively. Comprehensive income for the six months ended April 30, 2007 and 2006 was $25.5 million and $14.7 million, respectively.

11. Treasury Stock

     No stock repurchases were made in the first six months of 2007. The Company may, however, repurchase up to 2,000,000 shares of ABM’s common stock at any time through October 31, 2007 as authorized by the Board of Directors of ABM on December 12, 2006.

     The Company repurchased 800,000 shares of ABM’s common stock during the first six months of 2006 at a cost of $13.9 million (an average price of $17.43 per share) under a March 29, 2006 authorization by the Board of Directors of ABM that expired at October 31, 2006.

12. Benefit and Incentive Plans

     The Company offers various benefit and incentive plans to its employees and directors. Detailed descriptions of these plans are included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2006, as filed with the SEC.

Executive Officer Incentive Plan

     The purpose of the Executive Officer Incentive Plan (Incentive Plan) is to provide annual performance-based cash incentives to certain employees of the Company and to motivate those employees to set and achieve above-average financial and non-financial goals. The Incentive Plan gives the Compensation Committee of the Board of Directors of ABM the ability to award cash bonuses that qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. The aggregate funds available for bonuses under the Incentive Plan are three percent of pre-tax operating income for the award year. The plan sets forth certain limits on the awards to each of the covered employees eligible for bonuses under the Incentive Plan.

Retirement and Post-Retirement Plans

     The Company has two unfunded defined benefit plans. The Supplemental Executive Retirement Plan represents retirement agreements for current and former senior executives including two directors who are former employees. The Service Award Benefit Plan represents an unfunded severance pay plan covering certain qualified employees. The Supplemental Executive Retirement Plan was amended effective December 31, 2002 to preclude new participants and the Service Award Benefit Plan was frozen effective January 1, 2002. The Company also has one unfunded post-retirement benefit plan, the Death Benefit Plan, which also precludes new participants effective March 1, 2003.

     The Company had a Non-Employee Director Retirement Plan that was eliminated for new directors effective October 1, 2006. The individual retirement plan balances were frozen at October 31, 2006. On November 1, 2006, $1.1 million of the $1.8 million liability was transferred to the Director Deferred Compensation Plan based on certain directors’ elections. The remaining $0.7 million was converted to 28,341 restricted stock units on, and at the fair market value of ABM common stock of, March 6, 2007, the date of the 2007 annual meeting of the stockholders of ABM.

     The net expense of the defined benefit retirement plans and the post-retirement benefit plan for the three and six months ended April 30, 2007 and 2006 was as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2007				2006				2007				2006
Defined Benefit Retirement Plans
Service cost		$	(11	)		$	26			$	3			$	88
Interest			92				123				185				234
Amortization of actuarial loss			31				28				61				56
Net expense		$	112			$	177			$	249			$	378
Post-Retirement Benefit Plan
Service cost		$	6			$	7			$	12			$	15
Interest			61				61				121				123
Amortization of actuarial gain			(13	)			—				(25	)			—
Net expense		$	54			$	68			$	108			$	138

Deferred Compensation Plans

     The Company has an unfunded Deferred Compensation Plan available to executive, management, administrative and sales employees whose annualized base salary equals or exceeds $100,000. The plan allows employees to defer from 1% to 20% of their pre-tax compensation. At April 30, 2007, there were 66 active participants and 39 retired or terminated employees participating in the plan.

     On October 23, 2006 the Board of Directors adopted an unfunded Director Deferred Compensation Plan. Based on certain directors’ elections, $1.1 million of the $1.8 million liability under the Non-employee Directors’ Retirement Plan was transferred to the Director Deferred Compensation Plan. For each plan year commencing with 2007, a director may elect to defer receipt of all or any portion of the compensation that he or she would otherwise receive from ABM. At April 30, 2007, there were four active directors participating in the plan.

     The deferred amount under both plans earns interest equal to the prime interest rate on the last day of the calendar quarter up to 6%. If the prime rate exceeds 6%, the interest rate is equal to 6% plus one half of the excess over 6%. Starting April 1, 2007, interest is further capped at 120% of the long-term applicable federal rate (compounded quarterly) in the Deferred Compensation Plan. The average interest rates credited to both plans for the three and six months ended April 30, 2007 were 6.64% and 6.88%, respectively, and to the Deferred Compensation Plan for the three and six months ended April 30, 2006 were 6.96% and 6.84%, respectively.

     The transactions under the two deferred compensation plans for the three and six months ended April 30, 2007 and 2006 were as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2007				2006				2007				2006
Participant contributions		$	180			$	190			$	461			$	397
Interest accrued		$	169			$	155			$	357			$	322
Payments		$	(1,058	)		$	(926	)		$	(1,153	)		$	(1,672	)

401(k) Plans

     The Company made matching contributions required by its 401(k) plans for the three months ended April 30, 2007 and 2006 in the amounts of $1.5 million and $1.4 million, respectively, and for the six months ended April 30, 2007 and 2006 in the amounts of $2.8 million each.

Pension Plans Under Collective Bargaining Agreements

     Certain qualified employees of the Company are covered under union-sponsored multi-employer defined benefit plans. Contributions paid for these plans were $9.1 million and $8.1 million in the three months ended April 30, 2007 and 2006, respectively, and $18.4 million and $16.8 million in the six months ended April 30, 2007 and 2006, respectively. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts.

13. Segment Information

     Under the criteria of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Janitorial, Parking, Security, Engineering, and Lighting are reportable segments. Most Corporate expenses are not allocated. Such expenses include the Company’s share-based compensation costs and adjustments to the Company’s self-insurance reserves relating to prior years. Until damages and costs are awarded or a matter is settled, the Company also accrues probable and estimable losses associated with pending litigation in Corporate.

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2007				2006				2007				2006
Sales and other income
Janitorial		$	399,518			$	382,604			$	799,744			$	768,958
Parking			118,521				106,063				233,327				211,784
Security			77,549				75,278				158,367				153,574
Engineering			72,044				68,101				146,822				135,040
Lighting			28,923				27,248				59,980				56,144
Corporate			1,296				814				3,160				1,209
		$	697,851			$	660,108			$	1,401,400			$	1,326,709
Operating profit
Janitorial		$	23,758			$	20,959			$	40,600			$	35,655
Parking			7,967				3,011				11,007				4,650
Security			(434	)			287				666				462
Engineering			2,896				3,762				5,970				6,950
Lighting			590				249				1,265				584
Corporate			(9,171	)			(11,505	)			(20,411	)			(25,584	)
Operating profit			25,606				16,763				39,097				22,717
Interest expense			(109	)			(121	)			(242	)			(244	)
Income before income taxes		$	25,497			$	16,642			$	38,855			$	22,473

14. Contingencies

     The Company accrues amounts it believes are adequate to address any liabilities related to litigation and arbitration proceedings, and other contingencies that the Company believes will result in a probable loss. However, the ultimate resolution of such matters is always uncertain. It is possible that any such proceedings brought against the Company could have a material adverse impact on its financial condition and results of operations. The total amount accrued for probable losses at April 30, 2007 was $3.5 million.

15. Income Taxes

     The estimated annual effective tax rates used in the second quarter of 2007 and 2006 were 37.0% and 37.5%, respectively. The reduced estimated rate for 2007 reflects expected increased Work Opportunity Tax Credits following the retroactive reinstatement of these credits in 2007. The effective tax rate was, however, 34.4% and 37.6% in the second quarter of 2007 and 2006, respectively, and 34.6% and 36.0% in the first six months of 2007 and 2006, respectively. The following discrete tax benefits lowered the effective tax rate from the estimated. A $0.6 million deferred tax benefit was recorded in the second quarter of 2007 due to the increase in the Company’s net deferred tax assets from the new state of New York requirement to file combined returns effective in 2008. A $0.3 million tax benefit was recorded in the first quarter of 2007 primarily due to the inclusion in the period of Work Opportunity Tax Credits attributable to 2006, but not recognizable in 2006 because the program had expired and was not extended until the first quarter of 2007. Another $0.3 million benefit was recorded in the first six months of 2006 primarily due to the increase in deferred tax assets as of April 30, 2006 related to an increase in the estimated overall state income tax rate.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the consolidated financial statements of the Company included in this Quarterly Report on Form 10-Q and with the consolidated financial statements and notes thereto and Management’s Discussion and Analysis included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2006. All information in the discussion and references to the years are based on the Company’s fiscal year which ends on October 31 and the three- month and six-month periods which end on April 30.

Overview

     ABM Industries Incorporated (“ABM”) and its subsidiaries (the “Company”) provide janitorial, parking, security, engineering and lighting services for thousands of commercial, industrial, institutional and retail facilities in hundreds of cities throughout the United States and in British Columbia, Canada. The largest segment of the Company’s business is Janitorial which generated over 57% of the Company’s sales and other income (hereinafter called “Sales”) and over 68% of its operating profit before Corporate expenses in the first six months of 2007.

     The Company’s Sales are substantially based on the performance of labor-intensive services at contractually specified prices. The level of Sales directly depends on commercial real estate occupancy levels. Decreases in occupancy levels reduce demand and also create pricing pressures on building maintenance and other services provided by the Company.

     Janitorial and other maintenance service contracts are either fixed-price or “cost-plus” (i.e., the customer agrees to reimburse the agreed upon amount of wages and benefits, payroll taxes, insurance charges and other expenses plus a profit percentage), or are time and materials based. In addition to services defined within the scope of the contract, the Company also generates Sales from extra services (or “tags”), such as additional cleaning requirements or emergency repair services, with extra services frequently providing higher margins. The quarterly profitability of fixed-price contracts is impacted by the variability of the number of work days in the quarter.

     The majority of the Company’s contracts are for one-year periods, but are subject to termination by either party after 30 to 90 days’ written notice. Upon renewal of the contract, the Company may renegotiate the price although competitive pressures and customers’ price sensitivity could inhibit the Company’s ability to pass on cost increases. Such cost increases include, but are not limited to, labor costs, workers’ compensation and other insurance costs, any applicable payroll taxes and fuel costs. However, for some renewals the Company is able to restructure the scope and terms of the contract to maintain or increase profit margin.

     Sales have historically been the major source of cash for the Company, while payroll expenses, which are substantially related to Sales, have been the largest use of cash. Hence operating cash flows primarily depend on the Sales level and timing of collections, as well as the quality of the customer accounts receivable. The timing and level of the payments to suppliers and other vendors, as well as the magnitude of self-insured claims, also affect operating cash flows. The Company’s management views operating cash flows as a good indicator of financial strength. Strong operating cash flows provide opportunities for growth both internally and through acquisitions.

     The Company’s growth in Sales in the first six months of 2007 from the same period in 2006 is primarily attributable to internal growth. Internal growth in Sales represents not only Sales from new customers, but also expanded services or increases in the scope of work for existing customers. In the long run, achieving the desired levels of Sales and profitability will depend on the Company’s ability to gain and retain, at acceptable profit margins, more customers than it loses, pass on cost increases to customers, and keep overall costs down to remain competitive, particularly against privately owned companies that typically have a lower cost advantage. It also plans to increase Sales by expanding its

services into international markets. The Company expects to focus its financial and management resources on those businesses it can grow to be a leading national service provider.

     In the short-term, management is pursuing new business, increasing operating efficiencies, and integrating its most recent acquisitions. It is also implementing a number of other projects to enhance its competitiveness including consolidating certain back office operations in a Shared Services Center in Houston, Texas. The Company is also relocating its Janitorial headquarters to Houston, concentrating its other business units in southern California and, in 2008, relocating its executive headquarters to New York City. The Company has also started the upgrade and consolidation of its accounting, payroll, and other information technology systems and expects full implementation by the end of 2009.

Liquidity and Capital Resources

		April 30,				October 31,
(in thousands)		2007				2006				Change
Cash and cash equivalents		$	98,685			$	134,001			$	(35,316	)
Working capital		$	344,603			$	312,456			$	32,147

		Six Months Ended April 30,
(in thousands)		2007				2006				Change
Net cash (used in) provided by operating activities		$	(28,965	)		$	2,452			$	(31,417	)
Net cash used in investing activities		$	(15,101	)		$	(15,524	)		$	423
Net cash provided by (used in) financing activities		$	8,750			$	(18,715	)		$	27,465

     Funds provided from operations and bank borrowings have historically been the sources for meeting working capital requirements, financing capital expenditures and acquisitions, repurchasing shares of ABM common stock, and paying cash dividends. As of April 30, 2007 and October 31, 2006, the Company’s cash and cash equivalents totaled $98.7 million and $134.0 million, respectively. The cash balance at April 30, 2007 declined from October 31, 2006 primarily due to a $34.9 million income tax payment made in the first quarter of 2007 relating to the $80.0 million gain on the settlement of the World Trade Center insurance claims in the fourth quarter of 2006. In addition, a $7.1 million cash payment for the acquisition of the assets of HealthCare Parking Systems of America was made in the second quarter of 2007. These cash payments were partially offset by $7.5 million received in connection with the termination of an airport parking garage lease in Philadelphia.

     Working Capital. Working capital increased by $32.1 million to $344.6 million at April 30, 2007 from $312.5 million at October 31, 2006, primarily due to income generated during the first six months of 2007. Trade accounts receivable is the largest component of working capital and totaled $376.2 million at April 30, 2007 compared to $384.0 at October 31, 2006. These amounts were net of allowances for doubtful accounts and sales totaling $7.0 million and $8.0 million at April 30, 2007 and October 31, 2006, respectively. At April 30, 2007, accounts receivable that were over 90 days past due had decreased by $2.5 million to $30.3 million (7.9% of the total outstanding) from $32.8 million (8.4% of the total outstanding) at October 31, 2006.

     Cash Flows from Operating Activities. Net cash used in operating activities was $29.0 million in the first six months of 2007, compared to $2.5 million net cash provided by operating activities in the first six months of 2006. The use of cash is primarily a result of the $34.9 million income tax payment made in the first quarter of 2007 relating to the $80.0 million gain on the settlement of the World Trade Center insurance claims in the fourth quarter of 2006. This was partially offset by the $7.5 million received in connection with the termination of the airport parking garage lease.

     Cash Flows from Investing Activities. Net cash used in investing activities in the first six months of 2007 was $15.1 million, compared to $15.5 million in the first six months of 2006. The decrease is the net result of a $1.3 million decrease in purchases of property, plant and equipment, a $

1.5 million increase in the amount used to purchase businesses, and a $0.7 million increase in proceeds from the sale of assets.

     Cash Flows from Financing Activities. Net cash provided by financing activities was $8.8 million in the first six months of 2007, compared to $18.7 million used in the first six months of 2006, which was primarily the result of the use of $13.9 million to repurchase ABM common stock in the first six months of 2006. The Company did not repurchase ABM common stock in the first six months of 2007. The inflow of cash is also attributable to a $14.5 million increase in common stock issuances primarily as a result of more stock options exercised in the first six months of 2007 compared to the same period of 2006.

     Line of Credit. ABM has a $300 million syndicated line of credit scheduled to expire in May 2010. No compensating balances are required under the facility and the interest rate is determined at the time of borrowing based on the London Interbank Offered Rate (“LIBOR”) plus a spread of 0.375% to 1.125% or, for overnight borrowings, at the prime rate or, for overnight to one week, at the Interbank Offered Rate (“IBOR”) plus a spread of 0.375% to 1.125%. The spreads for LIBOR and IBOR borrowings are based on the Company’s leverage ratio. The facility calls for a non-use fee payable quarterly, in arrears, of 0.100%, based on the average daily unused portion. For purposes of this calculation, irrevocable standby letters of credit issued primarily in conjunction with the Company’s self-insurance program plus cash borrowings are considered to be outstanding amounts. As of April 30, 2007 and October 31, 2006, the total outstanding amounts under the facility were $107.3 million and $98.7 million, respectively, in the form of standby letters of credit.

     The facility includes usual and customary covenants for a credit facility of this type, including covenants limiting liens, dispositions, fundamental changes, investments, indebtedness, and certain transactions and payments. In addition, the facility also requires that the Company satisfy three financial covenants: (1) a fixed charge coverage ratio greater than or equal to 1.50 to 1.0 at fiscal quarter-end; (2) a leverage ratio of less than or equal to 3.25 to 1.0 at fiscal quarter-end; and (3) consolidated net worth greater than or equal to the sum of (i) $341.9 million, (ii) an amount equal to 50% of the consolidated net income earned in each full fiscal quarter ending after May 25, 2005 (with no deduction for a net loss in any such fiscal quarter) and (iii) an amount equal to 100% of the aggregate increases in stockholders’ equity of ABM after May 25, 2005 by reason of the issuance and sale of capital stock or other equity interests of ABM, including upon any conversion of debt securities of ABM into such capital stock or other equity interests, but excluding by reason of the issuance and sale of capital stock pursuant to the Company’s employee stock purchase plan, employee stock option plans and similar programs. The Company is currently in compliance with all covenants.

Commitments

     As of April 30, 2007, the Company’s future contractual payments, commercial commitments and other long-term liabilities were as follows:

(in thousands)		Payments Due By Period
Contractual										2 - 3				4 - 5				After 5
Obligations		Total				1 year				years				years				years
Operating Leases		$	110,686			$	34,771			$	39,171			$	19,487			$	17,257
IBM Services Agreement			99,197				17,056				31,212				28,288				22,641
IBM Payroll System Support			2,279				955				1,288				36				—
IBM Systems Upgrade, Implementation and Support			24,989				9,739				7,882				4,531				2,837
		$	237,151			$	62,521			$	79,553			$	52,342			$	42,735

(in thousands)		Payments Due By Period
Other Long-Term										2 - 3				4 - 5				After 5
Liabilities		Total				1 year				years				years				years
Unfunded Employee Benefit Plans		$	31,446			$	2,583			$	4,054			$	3,925			$	20,884

(in thousands)					Amounts of Commitment Expiration Per Period
Commercial										2 - 3				4 - 5				After 5
Commitments		Total				1 year				years				years				years
Standby Letters of Credit		$	107,315			$	107,315			$	—			$	—			$	—
Surety Bonds			63,533				60,949				2,573				10				1
		$	170,848			$	168,264			$	2,573			$	10			$	1
Total Commitments		$	439,445			$	233,368			$	86,180			$	56,277			$	63,620

     The amounts set forth under operating leases represent the Company’s contractual obligations to make future payments under non-cancelable operating lease agreements for various facilities, vehicles and other equipment.

     On September 29, 2006, the Company entered into a Master Professional Services Agreement (the “Services Agreement”) with International Business Machines Corporation (“IBM”) that became effective October 1, 2006, pursuant to which IBM will provide to the Company substantially all of the information technology infrastructure and services provided in 2006 by in-house equipment and personnel. The base fee for these services is approximately $117.0 million payable over the initial term of 7 years and 3 months. As of April 30, 2007, aggregate payments of $17.8 million have been made to IBM since the Services Agreement had become effective. Services covered by the Services Agreement may be expanded at rates set forth in the Services Agreement, or later agreed to by the parties, which would increase amounts payable to IBM.

     As a result of a January 23, 2007 expansion, IBM will provide maintenance and support services for the Company’s legacy payroll system. The base fee for these services is approximately $2.3 million payable over a 3 years and 7 month term that commenced April 1, 2007.

     The Company also completed an evaluation of its existing accounting, payroll and human resources information systems in the first quarter of 2007. On April 4, 2007, the Company further expanded services covered by the Services Agreement. IBM is now assisting in the upgrade of the Company’s existing accounting systems and the implementation of a new payroll system and human resources information system. IBM will also provide post implementation support services beginning July 1, 2008 through December 31, 2013. The base fee for this upgrade, implementation, and post implementation support services is $26.2 million payable over 6 years and 10 months. As of April 30, 2007, aggregate payments of $1.2 million have been made to IBM. The Company began the design phase of the project in the second quarter of 2007. The implementation of the new systems is scheduled to commence in July 2008 with completion by the end of 2009.

     Total anticipated cost for the upgrade of the existing accounting systems, and implementation of the new payroll system and human resources system is approximately $30.0 million, which includes IBM contracted system upgrade and implementation costs of $13.3 million, as well as licensing fees and other external costs.

     The Company has two unfunded defined benefit plans, an unfunded post-retirement benefit plan and two unfunded deferred compensation plans that are described in Note 12 of the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. At April 30, 2007, the liability reflected on the Company’s consolidated balance sheet for these five plans totaled $21.0 million, with the amount expected to be paid over the next 20 years estimated at $31.4 million. With the exception of the deferred compensation plans, the liabilities for which are reflected on the Company’s consolidated balance sheet at the amount of compensation deferred plus accrued interest, the plan liabilities at that date assume future annual compensation increases of 3.50% (for those plans affected by compensation changes) and have been discounted at 5.75%, a rate based on Moody’s Investor Services AA-rated long-term corporate bonds (i.e., 20 years). Because the deferred compensation plans’ liabilities reflect the actual obligations of the Company and the post-retirement benefit plan and two defined benefit plans have been frozen, variations in assumptions would be unlikely to have a material effect on the Company’s financial condition and operating performance. The Company expects to fund payments required under the plans from operating cash as payments are due to participants.

     Not included in the unfunded employee benefit plans in the table above are union-sponsored multi-employer defined benefit plans under which certain union employees of the Company are covered. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Contributions paid for these plans were $18.4 million and $16.8 million in the six months ended April 30, 2007 and 2006, respectively.

     The Company uses surety bonds, principally performance and payment bonds, to guarantee performance under various customer contracts in the normal course of business. These bonds typically remain in force for one to five years and may include optional renewal periods. At April 30, 2007, outstanding surety bonds totaled approximately $63.5 million. The Company does not believe these bonds will be required to be drawn upon.

     The Company self-insures certain insurable risks such as general liability, automobile, property damage, and workers’ compensation. Commercial policies are obtained to provide for $150.0 million of coverage for certain risk exposures above the self-insured retention limits (i.e., deductibles). The estimated liability for claims incurred at April 30, 2007 and October 31, 2006 was $196.3 million and $195.2 million, respectively. The Company periodically evaluates its estimated claim costs and liabilities and accrues self-insurance reserves to its best estimate. The Company also uses these evaluations to develop insurance rates for each operation, which are expressed per $100 of exposure (labor and revenues). These rates become a factor in pricing by the regions/segments and in determining the operating profits of each segment.

     The self-insurance claims paid in the first six months of 2007 and 2006 were $28.7 million and $30.1 million, respectively. Claim payments vary based on the frequency and/or severity of claims incurred and timing of the settlements and therefore may have an uneven impact on the Company’s cash balances.

     The Company believes that the current cash and cash equivalents, cash generated from operations and the line of credit will be sufficient to meet the Company’s cash requirements for the long term including cash required for acquisitions.

Environmental Matters

     The Company’s operations are subject to various federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. These laws 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, results of operations, or cash flows. In addition, from time to time the Company is involved in environmental issues at certain of its

locations or in connection with its operations. While it is difficult to predict the ultimate outcome of any 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, results of operations, or cash flows.

Off-Balance Sheet Arrangements

     The Company is party to a variety of agreements under which it may be obligated to indemnify the other party for certain matters. Primarily, these agreements are standard indemnification arrangements in its ordinary course of business. Pursuant to these arrangements, the Company may agree to indemnify, hold harmless and reimburse the indemnified parties for losses suffered or incurred by the indemnified party, generally its customers, in connection with any claims arising out of the services that the Company provides. The Company also incurs costs to defend lawsuits or settle claims related to these indemnification arrangements and in most cases these costs are paid from its insurance program. The term of these indemnification arrangements is generally perpetual. Although the Company attempts to place limits on this indemnification reasonably related to the size of the contract, the maximum obligation may not be explicitly stated and, as a result, the maximum potential amount of future payments the Company could be required to make under these arrangements is not determinable.

     ABM’s certificate of incorporation and bylaws may require it to indemnify Company directors and officers against liabilities that may arise by reason of their status as such and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified. ABM has also entered into indemnification agreements with its directors to this effect. The overall amount of these obligations cannot be reasonably estimated, however, the Company believes that any loss under these obligations would not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Acquisitions

     The operating results of businesses acquired have been included in the accompanying consolidated financial statements from their respective dates of acquisition. Acquisitions made during the six months ended April 30, 2007 and 2006 are discussed in Note 8 of Notes to Consolidated Financial Statements.

Results of Operations

Three Months Ended April 30, 2007 vs. Three Months Ended April 30, 2006

		Three Months								Three Months
		Ended				% of				Ended				% of				Increase
($ in thousands)		April 30, 2007				Sales				April 30, 2006				Sales				(Decrease)
Revenues
Sales and other income		$	697,851				100.0	%		$	660,108				100.0	%			5.7	%
Expenses
Operating expenses and cost of goods sold			619,313				88.7	%			592,322				89.7	%			4.6	%
Selling, general and administrative			51,601				7.4	%			49,530				7.5	%			4.2	%
Amortization of intangible assets			1,331				0.2	%			1,493				0.2	%			(10.9	)%
Interest			109				—				121				—				(9.9	)%
Total expenses			672,354				96.3	%			643,466				97.5	%			4.5	%
Income before income taxes			25,497				3.7	%			16,642				2.5	%			53.2	%
Income taxes			8,775				1.3	%			6,250				0.9	%			40.4	%
Net Income		$	16,722				2.4	%		$	10,392				1.6	%			60.9	%

     Net Income. Net income in the second quarter of 2007 increased by $6.3 million, or 60.9%, to $16.7 million ($0.33 per diluted share) from $10.4 million ($0.21 per diluted share) in the second quarter of 2006. This increase was primarily due to a $5.0 million ($3.0 million after-tax) gain in Parking in connection with the termination of an airport parking garage lease and increases in operating profits in Janitorial and Lighting despite across the board increases in selling and administrative payroll costs. In addition, the Company recorded a $0.6 million deferred tax benefit in the second quarter of 2007 as a result of a change in state of New York tax law. The increase is also attributable to the absence of $2.4 million ($1.5 million after-tax) of professional fees related to the Audit Committee’s independent investigation of the 2005 accounting at Security Services of America (“SSA”), a Company subsidiary, included in the second quarter of 2006. Partially offsetting these improvements was $1.9 million ($1.2 million after-tax) of share-based compensation expense recognized in the second quarter of 2007 as a result of the vesting of certain options when target prices for ABM common stock were achieved.

     Revenues. Sales in the second quarter of 2007 increased by $37.7 million, or 5.7%, to $697.9 million from $660.1 million in the second quarter of 2006, primarily due to new business and expansion of services or increases in the scope of work for existing customers. Parking’s reimbursements for out-of-pocket expenses from managed parking lot clients were $5.2 million higher in the second quarter of 2007 than in the same quarter in 2006. Parking Sales also included the $5.0 million gain in connection with the termination of an airport parking garage lease.

     Operating Expenses and Cost of Goods Sold. As a percentage of Sales, gross profit (Sales minus operating expenses and cost of goods sold) was 11.3% and 10.3% in the second quarter of 2007 and 2006, respectively. The increase in margins was primarily due to the $5.0 million gain in connection with the lease termination in Parking, the elimination of unprofitable customer accounts in Security, and lower insurance rates in Janitorial, partially offset by a decrease in profit margins in Engineering.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses for the second quarter of 2007 increased $2.1 million, or 4.2%, compared to the second quarter of 2006 primarily due to a $2.9 million increase in selling and administrative payroll costs as a result of new hires, annual salary increases, and increased bonuses, and the $1.9 million of share-based compensation expense recognized when target prices for ABM common stock were achieved. The impact of these increases was reduced because of the $2.4 million of professional fees associated with the Audit Committee’s independent investigation of 2005 accounting at SSA included in the second quarter of 2006.

     Income Taxes. The estimated annual effective tax rate used for the second quarter of 2007 was 37.0%, compared to the 37.5% used for the second quarter of 2006. The reduced estimated rate reflects expected increased Work Opportunity Tax Credits following the retroactive reinstatement of these credits in 2007. The effective tax rates were, however, 34.4% in the second quarter of 2007 and 37.6% in the second quarter of 2006. The lower effective tax rate was primarily due to a $0.6 million deferred tax benefit recorded in the second quarter of 2007 due to the increase in the Company’s net deferred tax assets from the new state of New York requirement to file combined returns effective in 2008.

     Segment Information. Under the criteria of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Janitorial, Parking, Security, Engineering, and Lighting are reportable segments. Most Corporate expenses are not allocated. Such expenses include the Company’s share-based compensation costs and adjustments to the Company’s self-insurance reserves relating to prior years. Until damages and costs are awarded or a matter is settled, the Company also accrues probable and estimable losses associated with pending litigation in Corporate.

		Three Months Ended April 30,								Better
($ in thousands)		2007				2006				(Worse)
Sales and other income
Janitorial		$	399,518			$	382,604				4.4	%
Parking			118,521				106,063				11.7	%
Security			77,549				75,278				3.0	%
Engineering			72,044				68,101				5.8	%
Lighting			28,923				27,248				6.1	%
Corporate			1,296				814				59.2	%
		$	697,851			$	660,108				5.7	%
Operating profit
Janitorial		$	23,758			$	20,959				13.4	%
Parking			7,967				3,011				164.6	%
Security			(434	)			287				(251.2	)%
Engineering			2,896				3,762				(23.0	)%
Lighting			590				249				136.9	%
Corporate			(9,171	)			(11,505	)			20.3	%
Operating profit			25,606				16,763				52.8	%
Interest expense			(109	)			(121	)			9.9	%
Income before income taxes		$	25,497			$	16,642				53.2	%

     The results of operations from the Company’s segments for the quarter ended April 30, 2007, compared to the same quarter in 2006, are more fully described below.

     Janitorial. Janitorial Sales increased by $16.9 million, or 4.4%, during the second quarter of 2007 compared to the same quarter of 2006. All Janitorial regions, except Northern California, experienced Sales growth. This was due to new business, expansion of services to customers and price adjustments to pass through a portion of union cost increases. The decrease in Sales in Northern California was due to reductions in scope of service at some existing customers and lost accounts.

     Operating profit increased $2.8 million, or 13.4%, during the second quarter of 2007 compared to the same quarter of 2006. The increase was primarily attributable to a $1.6 million decrease in insurance expense reflecting a reduction in insurance rates charged to the segment, a $1.3 million decrease in state unemployment taxes, and operating profit from the higher Sales. These improvements were partially offset by increased selling and administrative payroll costs, and higher union benefit costs.

     Parking. Parking Sales increased by $12.5 million, or 11.7%, during the second quarter of 2007 compared to the same quarter of 2006, mainly as a result of a $5.2 million increase in reimbursements for out-of-pocket expenses from managed parking lot clients due to new contracts and the $5.0 million gain in connection with the termination of an airport parking garage lease in Philadelphia. The gain also includes forgiveness by the Company of the lessor’s $1.1 million promissory note. Lease, allowance, and management fee revenues also increased $3.5 million in the second quarter of 2007 compared to the second quarter of 2006. The $3.5 million increase includes $2.5 million in revenues from HealthCare Parking Systems of America, Inc. (“HPSA”), which was acquired on April 2, 2007. These increases were partially offset by revenues lost as a result of the termination of the airport parking garage lease.

     Operating profit increased $5.0 million, or 164.6%, during the second quarter of 2007 compared to the same quarter of 2006 as a result of the $5.0 million lease termination gain and operating profits from increased lease and fixed allowance revenues. These benefits were partially offset by additional operating costs associated with adverse weather conditions in the second quarter of 2007 compared to the mild weather conditions during the same quarter in 2006.

     Security. Security Sales increased $2.3 million, or 3.0%, during the second quarter of 2007 compared to the same quarter of 2006 primarily due to new business, although the elimination of unprofitable customer accounts partially offset the impact of the new business. Security had an operating loss of $0.4 million in the second quarter of 2007 compared to an operating profit of $0.3 million in the same quarter of 2006. This loss was primarily the result of a second quarter 2007 $1.7 million litigation settlement, a portion of which had been previously accrued as a litigation loss provision in Corporate prior to settlement. Partially offsetting this litigation settlement was a $0.4 million reduction in the second quarter of 2007 in the reserve for the amount the Company estimated it overpaid Security Services of America, LLC (“SSA, LLC”) in 2004. The reduction of the reserve was a result of the final settlement of this matter. In addition, the elimination of unprofitable customer contracts lessened Security’s operating loss.

     Engineering. Engineering Sales increased $3.9 million, or 5.8%, in the second quarter of 2007 compared to the same quarter in 2006, which was mainly due to new business and the expansion of services to existing customers, most significantly in the Eastern and Northern California regions. Operating profits decreased by $0.9 million, or 23.0%, in the second quarter of 2007 compared to the same quarter in 2006 primarily due to reduced profit margin of the new business compared to business replaced. In addition, Engineering experienced higher payroll expense associated with increased management staff necessary to support the future growth of the business.

     Lighting. Lighting Sales increased $1.7 million, or 6.1%, during the second quarter of 2007 compared to the same quarter of 2006 primarily due to an increase in special project business in the Southwest and South Central regions. Operating profit increased $0.3 million, or 136.9%, primarily due to increased Sales.

     Corporate. Corporate expense in the second quarter of 2007 decreased by $2.3 million, or 20.3%, compared to the same quarter of 2006, which is primarily attributable to the absence of $2.4 million of professional fees associated with the Audit Committee’s independent investigation of 2005 accounting at SSA included in the second quarter of 2006 and a $1.4 million benefit from reversing a loss provision upon settlement of a lawsuit, the cost of which was recorded in the Security segment. Until damages and costs are awarded or a matter is settled, the Company accrues probable and estimable losses at Corporate. These benefits were offset, in part, by $1.9 million of share-based compensation expense from the acceleration of price vested options.

Six Months Ended April 30, 2007 vs. Six Months Ended April 30, 2006

		Six Months								Six Months
		Ended				% of				Ended				% of				Increase
($ in thousands)		April 30, 2007				Sales				April 30, 2006				Sales				(Decrease)
Revenues
Sales and other income		$	1,401,400				100.0	%		$	1,326,709				100.0	%			5.6	%
Expenses
Operating expenses and cost of goods sold			1,249,418				89.2	%			1,198,498				90.3	%			4.2	%
Selling, general and administrative			110,214				7.9	%			102,423				7.7	%			7.6	%
Amortization of intangible assets			2,671				0.2	%			3,071				0.2	%			(13.0	)%
Interest			242				—				244				—				(0.8	)%
Total expenses			1,362,545				97.2	%			1,304,236				98.3	%			4.5	%
Income before income taxes			38,855				2.8	%			22,473				1.7	%			72.9	%
Income taxes			13,429				1.0	%			8,091				0.6	%			66.0	%
Net Income		$	25,426				1.8	%		$	14,382				1.1	%			76.8	%

     Net Income. Net income in the first six months of 2007 increased by $11.0 million, or 76.8%, to $25.4 million ($0.51 per diluted share) from $14.4 million ($0.29 per diluted share) in the same period of 2006 primarily due to the $5.0 million ($3.0 million after-tax) gain recorded in Parking in connection with the termination of an airport parking garage lease and a $4.2 million ($2.6 million after-tax) reduction in the Company’s self insurance reserves related to 2006 and prior years’ insurance claims. All operating segments showed profit improvements except Engineering despite across the board increases in selling and administrative payroll costs. The increase is also attributable to the absence of the $2.4 million ($1.5 million after-tax) of professional fees related to the Audit Committee’s independent investigation of the 2005 accounting at SSA, included in the first six months of 2006 and a $2.8 million ($1.7 million after-tax) reduction in professional fees related to the Sarbanes-Oxley internal controls certification requirement in the first six months of 2007. These improvements were partially offset by $3.9 million ($2.4 million after-tax) of share-based compensation expense due to the vesting of certain options when target prices on ABM common stock were achieved and a $1.7 million ($1.0 million after-tax) litigation settlement in Security.

     Revenues. Sales in the first six months of 2007 increased $74.7 million, or 5.6%, to $1,401.4 million from $1,326.7 million in the same period of 2006, primarily due to new business and expansion of services or increases in the scope of work for existing customers. Parking’s reimbursements for out-of-pocket expenses from managed parking lot clients were $12.3 million higher in the first six months of 2007 than in the same period in 2006. Parking Sales also included the $5.0 million gain in connection with the lease termination.

     Operating Expenses and Cost of Goods Sold. As a percentage of Sales, gross profit was 10.8% and 9.7% in the first six months of 2007 and 2006, respectively. The increase in margins was primarily due to the $5.0 million gain in Parking in connection with the airport parking lease termination, the $4.2 million reduction in the Company’s self insurance reserves related to 2006 and prior years’ insurance claims, lower insurance rates, and the elimination of unprofitable customer accounts in Security, partially offset by a decrease in profit margins in Engineering.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses for the first six months of 2007 increased $7.8 million, or 7.6%, compared to the same period of 2006, primarily due to a $5.6 million increase in selling and administrative payroll costs as a result of new hires, annual salary increases, and increased bonuses, the $3.9 million of share-based compensation expense recognized when target prices for ABM common stock were achieved, and the $1.7 million litigation settlement in Security. The impact of these increases on the change between six-month periods to selling, general and administrative expenses was reduced because of the absence of $2.4 million of professional fees associated with the Audit Committee’s independent investigation of 2005 accounting at SSA included in the second quarter of 2006, and a $2.8 million reduction in professional fees related to the Sarbanes-Oxley internal controls certification requirement in the first six months of 2007 from the comparable period of 2006.

     Income Taxes. The estimated annual effective tax rates used for the first six months of 2007 and 2006 were 37.0% and 37.5%, respectively. The reduced estimated rate reflects expected increased Work Opportunity Tax Credits following the retroactive reinstatement of these credits in 2007. The effective tax rates were, however, 34.6% and 36.0% in the first six months of 2007 and 2006, respectively. The following discrete tax benefits lowered the effective tax rate from the estimated. A $0.6 million deferred tax benefit was recorded in the second quarter of 2007 due to the increase in the Company’s net deferred tax assets from the new state of New York requirement to file combined returns effective in 2008. A $0.3 million tax benefit was previously recorded in the first quarter of 2007 primarily due to the inclusion in the period of Work Opportunity Tax Credits attributable to 2006, but not recognizable in 2006 because the program had expired and was not extended until the first quarter of 2007. Another $0.3 million deferred tax benefit was recorded in the first six months of 2006 primarily due to the increase in deferred tax assets as of April 30, 2006 related to an increase in the estimated overall state income tax rate.

Segment Information.

		Six Months Ended April 30,								Better
($ in thousands)		2007				2006				(Worse)
Sales and other income
Janitorial		$	799,744			$	768,958				4.0	%
Parking			233,327				211,784				10.2	%
Security			158,367				153,574				3.1	%
Engineering			146,822				135,040				8.7	%
Lighting			59,980				56,144				6.8	%
Corporate			3,160				1,209				161.4	%
		$	1,401,400			$	1,326,709				5.6	%
Operating profit
Janitorial		$	40,600			$	35,655				13.9	%
Parking			11,007				4,650				136.7	%
Security			666				462				44.2	%
Engineering			5,970				6,950				(14.1	)%
Lighting			1,265				584				116.6	%
Corporate			(20,411	)			(25,584	)			20.2	%
Operating profit			39,097				22,717				72.1	%
Interest expense			(242	)			(244	)			0.8	%
Income before income taxes		$	38,855			$	22,473				72.9	%

     The results of operations from the Company’s segments for the six months ended April 30, 2007, compared to the same period in 2006, are more fully described below.

     Janitorial. Janitorial Sales increased by $30.8 million, or 4.0%, during the first six months of 2007 compared to the same period of 2006. All Janitorial regions, except Northern California, experienced Sales growth. This was due to new business, expansion of services to customers and price adjustments to pass through a portion of union cost increases. The decrease in Sales in Northern California was due to reductions in scope of service at some existing customers and lost accounts.

     Operating profit increased $4.9 million, or 13.9%, during the first six months of 2007 compared to the same period of 2006. The increase was primarily attributable to a $3.8 million decrease in insurance expense reflecting a reduction in insurance rates charged to the segment, a $1.8 million decrease in state unemployment taxes, and operating profit from higher Sales. These improvements were partially offset by increased selling and administrative payroll costs, higher union benefit costs, and a provision for settlement of a union health and welfare benefits audit.

     Parking. Parking Sales increased by $21.5 million, or 10.2%, during the first six months of 2007 compared to the same period of 2006, mainly as a result of a $12.3 million increase in reimbursements for out-of-pocket expenses from managed parking lot clients due to new contracts and the $5.0 million gain in connection with the termination of the airport parking garage lease. The gain includes forgiveness by the Company of the lessor’s $1.1 million promissory note. Lease, allowance, and management fee revenues also increased $7.1 million in the first six months of 2007 compared to the first six months of 2006. The $7.1 million increase includes $2.5 million in revenues from HPSA, which was acquired on April 2, 2007. These increases were partially offset by revenues lost as a result of the termination of the airport parking garage lease.

     Operating profit increased $6.4 million, or 136.7%, during the first six months of 2007 compared to the same period of 2006 as a result of the $5.0 million lease termination gain, increased profits from

lease revenues, increased management fee income, and a reduction in legal expenses from the first six months of 2006. These benefits were partially offset by additional operating costs associated with adverse weather conditions in the first six months of 2007 compared to the mild weather conditions during the same period in 2006.

     Security. Security Sales increased $4.8 million, or 3.1%, during the first six months of 2007 compared to the same period of 2006 primarily due to new business, although the elimination of unprofitable customer accounts partially offset the impact of the new business. Operating profits increased by $0.2 million, or 44.2%, in the first six months of 2007 compared to the same period of 2006 primarily due to a $0.9 million reduction in the first six months of 2007 in the reserve for the amount the Company estimated it overpaid SSA, LLC in 2004, and an increase in profit resulting from the elimination of unprofitable customer contracts. Nearly offsetting these benefits, was a $1.7 million litigation settlement in the first six months of 2007.

     Engineering. Engineering Sales increased $11.8 million, or 8.7%, in the first six months of 2007 compared to the same period in 2006, which was mainly due to new business and the expansion of services to existing customers, most significantly in the Eastern, Northern California, and Mid-Atlantic regions. Operating profits decreased by $1.0 million, or 14.1%, in the first six months of 2007 compared to the same period in 2006 primarily due to reduced profit margin of the new business. In addition, Engineering experienced higher payroll expense associated with increased management staff necessary to support the future growth of the business.

     Lighting. Lighting Sales increased $3.8 million, or 6.8%, during the first six months of 2007 compared to the same period of 2006 primarily due to an increase in special project business in the Southwest and South Central regions. Operating profit increased $0.7 million, or 116.6%, in the first six months of 2007 compared to the same period of 2006, primarily due to increased Sales.

     Corporate. Corporate expense in the first six months of 2007 decreased by $5.2 million, or 20.2%, compared to the same period in 2006, which is primarily a result of a $4.2 million reduction in the Company’s self insurance reserves related to 2006 and prior years’ insurance claims, the absence of $2.4 million of professional fees associated with the Audit Committee’s independent investigation of 2005 accounting at SSA included in the second quarter of 2006, and a $2.8 million reduction in professional fees related to the Sarbanes-Oxley internal controls certification requirement in the second quarter of 2007. These benefits were offset, in part, by $3.9 million of share-based compensation expense from the acceleration of price vested options.

Adoption of Accounting Standards

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued Emerging Issues Task Force (“EITF”) Issue No. 06-3 (“EITF 06-3”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-3 requires companies to disclose the presentation of any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer (e.g., sales and use tax) as either gross or net in the accounting policies included in the notes to the financial statements. EITF 06-3 became effective beginning in the second quarter of 2007. The Company continues to report revenues net of sales and use tax imposed on the related transaction.

     In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB No. 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The guidance in SAB No. 108 requires companies to base their materiality evaluations on all relevant quantitative and qualitative factors. This involves quantifying the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The implementation of SAB No.

108, which became effective beginning in the first quarter of 2007, did not have any impact on the Company’s evaluation as the Company was substantially following guidance provided in SAB No. 108.

Recent Accounting Pronouncements

     In June 2006, the FASB issued FASB Financial Interpretation No. 48, “Accounting for Uncertain Tax Positions” (“FIN 48”). FIN 48 provides guidance on the accounting for and disclosure of tax positions accounted for in accordance with SFAS No. 109. FIN 48 requires that the effects of a tax position be initially recognized when it is “more likely than not” (which is defined as a greater than 50 percent chance) that the position will be sustained upon examination by the taxing authorities. In addition, FIN 48 requires additional disclosures regarding tax positions. FIN 48 is effective for the Company beginning in fiscal 2008. The Company is presently assessing the impact of FIN 48 on the Company’s consolidated financial position, results of operations and cash flows.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 was issued to provide guidance and consistency for comparability in fair value measurements and for expanded disclosures about fair value measurements. The Company does not anticipate that SFAS No. 157 will have an impact on the Company’s consolidated financial position, results of operations or disclosures in the Company’s financial statements. SFAS No. 157 will be effective beginning in 2009.

     In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132 (R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its year end statement of financial position. The Company does not anticipate that SFAS No. 158 will have a material impact on its financial position and results of operations. SFAS No. 158 will be effective as of October 31, 2007.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 was issued to permit entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by this SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates and includes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Company does not anticipate that SFAS No. 159 will have an impact on the Company’s consolidated financial position, results of operations or disclosures in the Company’s financial statements. SFAS No. 159 will be effective beginning in 2009.

Critical Accounting Policies and Estimates

     The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to self-insurance reserves, allowance for doubtful accounts, sales allowance, valuation allowance for the net deferred income tax asset, estimate of useful life of intangible assets, impairment of goodwill and other intangibles, and contingencies and litigation liabilities. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

     The Company believes the following critical accounting policies govern its more significant judgments and estimates used in the preparation of its consolidated financial statements.

     Self-Insurance Reserves. Certain insurable risks such as general liability, automobile property damage and workers’ compensation are self-insured by the Company. However, commercial policies are obtained to provide coverage for certain risk exposures subject to specified limits. Accruals for claims under the Company’s self-insurance program are recorded on a claims-incurred basis. The Company periodically evaluates its estimated claim costs and liabilities and accrues self-insurance reserves to its best estimate.

     Additionally, management monitors new claims and claim development to assess the adequacy of the insurance reserves. The estimated future charge is intended to reflect the recent experience and trends. Trend analysis is complex and highly subjective. The interpretation of trends requires the knowledge of all factors affecting the trends that may or may not be reflective of adverse developments (e.g., changes in regulatory requirements and changes in reserving methodology). If the trends suggest that the frequency or severity of claims incurred has increased, the Company might be required to record additional expenses for self-insurance liabilities. Management also uses the information from its evaluations to develop insurance rates for each operation, expressed per $100 of exposure (labor and revenue).

     Allowance for Doubtful Accounts. Trade accounts receivable arise from services provided to the Company’s customers and are generally due and payable on terms varying from receipt of the invoice to net thirty days. The Company records an allowance for doubtful accounts to provide for losses on accounts receivable due to customers’ inability to pay. The allowance is typically estimated based on an analysis of the historical rate of credit losses or write-offs (due to a customer bankruptcy or failure of a former customer to pay) and specific customer concerns. The accuracy of the estimate is dependent on the future rate of credit losses being consistent with the historical rate. Changes in the financial condition of customers or adverse developments in negotiations or legal proceedings to obtain payment could result in the actual loss exceeding the estimated allowance. If the rate of future credit losses is greater than the historical rate, then the allowance for doubtful accounts may not be sufficient to provide for actual credit losses. Alternatively, if the rate of future credit losses is less than the historical rate, then the allowance for doubtful accounts will be in excess of actual credit losses. The Company does not believe that it has any material exposure due to either industry or regional concentrations of credit risk.

     Sales Allowance. Sales allowance is an estimate for losses on customer receivables resulting from customer credits (e.g., vacancy credits for fixed-price contracts, customer discounts, job cancellations and breakage cost). The sales allowance estimate is based on an analysis of the historical rate of sales adjustments (credit memos, net of re-bills). The accuracy of the estimate is dependent on the rate of future sales adjustments being consistent with the historical rate. If the rate of future sales adjustments is greater than the historical rate, then the sales allowance may not be sufficient to provide for actual sales adjustments. Alternatively, if the rate of future sales adjustments is less than the historical rate, then the sales allowance will be in excess of actual sales adjustments.

     Deferred Income Tax Asset and Valuation Allowance. 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 tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If the enacted rates in future years differ from the rates expected to apply, an adjustment of the net deferred tax assets will be required. Additionally, if management determines it is more likely than not that a portion of the net deferred tax asset will not be realized, a valuation allowance is recorded. At April 30, 2007, the net deferred tax asset was $87.9 million, net of a $1.5 million valuation allowance related to state net operating loss carryforwards. Should future income be less than anticipated, the net deferred tax asset may not be fully recoverable.

     Other Intangible Assets Other Than Goodwill. The Company performs valuations of intangible assets acquired in business acquisitions. Acquired customer relationship intangible assets are being amortized using the sum-of-the-years-digits method over their useful lives consistent with the estimated useful life considerations used in the determination of their fair values. The accelerated method of amortization reflects the pattern in which the economic benefits of the customer relationship intangible asset are expected to be realized. Trademarks and trade names are being amortized over their useful

lives using the straight-line method. Other intangible assets, consisting principally of contract rights, are being amortized over the contract periods using the straight-line method. At least annually, in the fourth quarter, the Company evaluates the remaining useful lives of its intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an asset’s remaining useful life changes, the remaining carrying amount of the intangible asset would be amortized over the revised remaining useful life. In addition, the remaining unamortized book value of intangibles is reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS No. 144”). The first step of an impairment test under SFAS No. 144 is a comparison of the future cash flows, undiscounted, to the remaining book value of the intangible. If the future cash flows are insufficient to recover the remaining book value, a fair value of the asset, depending on its size, will be independently or internally determined and compared to the book value to determine if an impairment exists.

     Goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangibles” (“SFAS No. 142”) goodwill is not amortized. The Company performs goodwill impairment tests on at least an annual basis, in the fourth quarter, using the two-step process prescribed in SFAS No. 142. The first step is to evaluate for potential impairment by comparing the reporting unit’s fair value with its book value. If the first step indicates potential impairment, the required second step allocates the fair value of the reporting unit to its assets and liabilities, including recognized and unrecognized intangibles. If the implied fair value of the reporting unit’s goodwill is lower than its carrying amount, goodwill is impaired and written down to its implied fair value. As of April 30, 2007, no impairment of the Company’s goodwill carrying value has been indicated.

     Contingencies and Litigation. ABM and certain of its subsidiaries have been named defendants in certain proceedings arising in the ordinary course of business, including certain environmental matters and wage and hour claims. Litigation outcomes are often difficult to predict and often are resolved over long periods of time. Estimating probable losses requires the analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties. Loss contingencies are recorded as liabilities in the consolidated financial statements when it is both: (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. So long as the Company believes that a loss in litigation is not probable, then no liability will be recorded unless the parties agree upon a settlement, which may occur because the Company wishes to avoid the costs of litigation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and, as such, are not subject to material foreign currency exchange rate risk. At April 30, 2007, the Company had no outstanding long-term debt. Although the Company’s assets included $98.7 million in cash and cash equivalents at April 30, 2007, market rate risk associated with changing interest rates in the United States was not material.

Item 4. Controls and Procedures

     a. Disclosure Controls and Procedures. As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s principal executive officer and principal financial officer evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, these officers concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, these disclosure controls and procedures were adequate to ensure that the information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and include controls

and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

     b. Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended April 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.OTHER INFORMATION

Item 1. Legal Proceedings

     The Company is involved in various claims and legal proceedings of a nature considered normal to its business, as well as from time to time in additional matters. The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available.

     The Company is a defendant in the following purported class action suits related to alleged violations of federal or California wage-and-hour laws: (1) The consolidated cases of Augustus, Hall and Davis v. American Commercial Security Services (“ACSS”) filed July 12, 2005, in the Superior Court of California, Los Angeles County (“L.A. Superior Ct.”); (2) Augustus and Hernandez v. ACSS filed on February 23, 2006, in L.A. Superior Ct.; (3) Bucio, Morales and Salcedo v. ABM Janitorial Services filed on April 7, 2006, in the Superior Court of California, County of San Francisco; (4) the recently consolidated cases of Batiz v. ACSS and Heine v. ACSS, filed on June 7, 2006 and August 9, 2006, respectively, in the U.S. District Court of California, Central District; (5) Martinez, Lopez, Rodriguez and Godoy v. ABM Janitorial Services filed on November 28, 2006 in L.A. Superior Ct (6) Joaquin Diaz v. Ampco System Parking filed on December 5, 2006, in L.A. Superior Ct and (7) Castellanos v. ABM Industries filed on April 5, 2007, in U.S. District Court of California, Central District. The named plaintiffs in these lawsuits are current or former employees of ABM subsidiaries who allege, among other things, that they were required to work “off the clock,” were not paid for all overtime and were not provided work breaks or other benefits. The plaintiffs generally seek unspecified monetary damages, injunctive relief, or both. The Company believes it has meritorious defenses to these claims and intends to continue to vigorously defend itself on claims not settled. On April 25, 2007, a settlement was reached in Augustus and Hernandez v. ACSS. The Company has established a liability of $1.7 million in accordance with this settlement, which remains subject to court approval.

     As described in more detail in Note 6 of Notes to Consolidated Financial Statements in this quarterly report on Form 10-Q, the Company self-insures certain insurable risks and, based on its periodic evaluations of estimated claim costs and liabilities, accrues self-insurance reserves to the Company’s best estimate. One such evaluation, completed in November 2004, indicated adverse developments in the insurance reserves that were primarily related to workers’ compensation claims in the state of California during the four-year period ended October 31, 2003 and resulted in the Company recording a charge of $17.2 million in the fourth quarter of 2004. The Company believes a substantial portion of the $17.2 million, as well as other cost incurred by the Company in its insurance claims was related to poor claims management by a third party administrator that no longer performs these services for the Company. The Company believes that poor claims administration in certain other states, particularly New York, led to higher costs for the Company. The Company has filed a claim against its former third party administrator for its damages related to claims mismanagement. The Company is actively pursuing this claim, which is subject to arbitration in accordance with the rules of the American Arbitration Association. The three-person arbitration panel has been designated and discovery is underway, including examination of a sample of claims by insurance experts.

     In August 2005, ABM filed an action for declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing in U.S. District Court in The Northern District of California against its insurance carriers, Zurich American Insurance Company (“Zurich American”) and National Union Fire Insurance Company (“National Union”) relating to the carriers’ failure to provide coverage for ABM and one of its Parking subsidiaries. In September 2006, the Company settled its claims against Zurich American for $400,000. Zurich American had provided $850,000 in coverage. In September 2006, the Company lost a motion for summary adjudication filed by National Union on the issue of the duty to defend. The Company has appealed that ruling and filed its reply brief in March 2007. ABM’s claim includes “bad faith” allegations for National Union’s breach of its duty to defend the Company in litigation with IAH-JFK Airport Parking Co., LLC. In early 2006, ABM paid $6.3 million in settlement costs in the IAH-JFK litigation and seeks to recover $5.3 million of these settlement costs and legal fees from National Union.

     While the Company accrues amounts it believes are adequate to address any liabilities related to litigation that the Company believes will result in a probable loss, the ultimate resolution of such matters is always uncertain. It is possible that litigation brought against the Company in the future could have a material adverse impact on its financial condition and results of operations. At April 30, 2007, the Company’s contingent loss reserves for legal proceedings aggregated $2.2 million.

Item 1A. Risk Factors

Factors That May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

     The disclosure and analysis in this Quarterly Report on Form 10-Q contain some forward-looking statements that set forth anticipated results based on management’s plans and assumptions. From time to time, the Company also provides forward-looking statements in other written materials released to the public, as well as oral forward-looking statements. Such statements give the Company’s current expectations or forecasts of future events; they do not relate strictly to historical or current facts. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, and the outcome of contingencies and other uncertainties, such as legal proceedings, and financial results. Management tries, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project” and similar expressions.

     Set forth below are factors that the Company thinks, individually or in the aggregate, could cause the Company’s actual results to differ materially from past results or those anticipated, estimated or projected. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Investors should understand that it is not possible to predict or identify all such factors. Consequently, the following should not be considered to be a complete list of all potential risks or uncertainties.

     The Company’s technology environment may be inadequate to support growth. Although the Company employs a centralized accounting system, the Company relies on a number of legacy information technology systems, particularly its payroll system, as well as manual processes, to conduct its operations. These systems and processes may be unable to provide adequate support for the business and create excessive reliance upon manual rather than system controls. Use of the legacy payroll systems could result, for instance, in delays in meeting payroll obligations, in difficulty calculating and tracking appropriate governmental withholding and other payroll regulatory obligations, and in higher internal and external expenses to work around these systems. Additionally, the current technology environment may be unable to support the integration of acquired businesses and anticipated internal growth. Effective October 2006, the Company entered into an outsourcing agreement with IBM to provide information technology infrastructure and services. The Company is implementing a new payroll and human resources information system, and upgrading its accounting system. The upgrade of the accounting system will include the consolidation of multiple databases, the potential replacement of custom systems and business process redesign to facilitate the implementation of shared-service

functions across the Company. In addition to the risk of potential failure in each project, supporting multiple concurrent projects may result in resource constraints and the inability to complete projects on schedule. The Company may also experience problems in transitioning to the new systems and/or additional expenditures may be required after the projects are completed. IBM supports the current technology environment for ABM and assists the Company in selecting new technology and upgrading current technology. While the Company believes that IBM’s experience and expertise will lead to improvements in its technology environment, the risks associated with outsourcing include the dependence upon a third party for essential aspects of the Company’s business and risks to the security and integrity of the Company’s data in the hands of third parties. The Company may also have potentially less control over costs associated with necessary systems when they are supported by a third party, as well as potentially less responsiveness from vendors than employees.

     Transition to a Shared Services Center could create disruption in functions affected. The Company has historically performed functions such as regional accounting, accounts payable, accounts receivable collection, and payroll in a decentralized manner through regional accounting centers in its businesses. In 2007, the Company is beginning the consolidation of these functions in a Shared Services Center in Houston, Texas. The consolidation will occur first in certain accounting functions for the Janitorial Division and over the next two years other functions and additional business units will be moved to the Shared Services Center. The timing of the consolidation of different functions is tied to the upgrade of the Company’s accounting systems and implementation of a new payroll system and human resources information system. In addition to the risks associated with technology changes, the Shared Services Center implementation could lead to the turnover of personnel with critical information, and thus in addition to the costs associated with replacing these employees, it could impede the Company’s ability to bill its customers and collect receivables and might cause customer dissatisfaction associated with an inability to respond to questions about billings and other information until new employees can be retained and fully trained. Because the consolidation of functions in the Shared Services Center is tied to the upgrade of the Company’s accounting system and implementation of a new payroll system and human resources information system, delays in the implementation of the technology changes would lead to delays in the Company’s ability to realize the benefits associated with the Shared Services Center.

     A change in the frequency or severity of claims against the Company, a deterioration in claims management, the cancellation or non-renewal of the Company’s primary insurance policies, or a change in our customer’s insurance needs could adversely affect the Company’s results. Many customers, particularly institutional owners and large property management companies, prefer to do business with contractors, such as the Company, with significant financial resources, who can provide substantial insurance coverage. In fact, many of our clients choose to obtain insurance coverage for their risks associated with our services by being named as additional insureds under our master liability insurance policies and by seeking contractual indemnification for any damages associated with our services. In addition, pursuant to our management and service contracts, we charge certain clients an allocated portion of our insurance-related costs, including workers’ compensation insurance, at rates that, because of the scale of our operations and claims experience, we believe are competitive. A material change in insurance costs due to a change in the number of claims, claims costs or premiums could have a material effect on our operating income. While the Company attempts to establish adequate self-insurance reserves, unanticipated increases in the frequency or severity of claims against the Company would have an adverse financial impact. Also, where the Company self-insures, a deterioration in claims management, whether by the Company or by a third party claims administrator, could lead to mismanagement of claims thereby increasing claim costs, particularly in the workers’ compensation area. In addition, catastrophic uninsured claims against the Company or the inability or refusal of the Company’s insurance carriers to pay otherwise insured claims would have a material adverse financial impact on the Company. Furthermore, should the Company be unable to renew its umbrella and other commercial insurance policies at competitive rates, it would have an adverse impact on the Company’s business.

     A change in estimated claims costs could affect the Company’s results. The Company periodically evaluates its estimated claim costs and liabilities to ensure that its self-insurance reserves are appropriate. Additionally, management monitors new claims and claims development to assess the

adequacy of the insurance reserves. Trend analysis is complex and highly subjective. The interpretation of trends requires the knowledge of all factors affecting the trends that may or may not be reflective of adverse developments (e.g., changes in regulatory requirements and changes in reserving methodology). If the trends suggest that the frequency or severity of claims incurred has increased, the Company might be required to record additional expenses for self-insurance liabilities. In addition, variations in estimates that cause changes in the Company’s insurance reserves may not always be related to changes in its claims experience. Changes in insurance reserves as a result of a review can cause swings in operating results that are unrelated to the Company’s ongoing business. In addition, because of the time required for the analysis, the Company may not learn of a deterioration in claims, particularly claims administered by a third party, until additional costs have been incurred or are projected. Because the Company bases its pricing in part on its estimated insurance costs, the Company’s prices could be higher or lower than they otherwise might be if better information were available resulting in a competitive disadvantage in the former case and reduced margins or unprofitable contracts in the latter.

          Acquisition activity could slow or be unsuccessful. A significant portion of the Company’s historic growth has come through acquisitions and the Company expects to continue to acquire businesses in the future as part of its growth strategy. A slowdown in acquisitions could lead to a slower growth rate. Because new contracts frequently involve start-up costs, sales associated with acquired operations generally have higher margins than new sales associated with internal growth. Therefore, a slowdown in acquisition activity could lead to constant or lower margins, as well as lower revenue growth. There can be no assurance that any acquisition that the Company makes in the future will provide the Company with the benefits that were anticipated when entering the transaction. The process of integrating an acquired business may create unforeseen difficulties and expenses. In addition, the Company’s announced strategy of international growth will entail new risks associated with currency fluctuations, international economic fluctuations, and language and cultural differences. The areas in which the Company may face risks in the United States and internationally include:

	•		Diversion of management time and focus from operating the business to acquisition integration;
	•		The need to implement or improve internal controls, procedures and policies appropriate for a public company at businesses that prior to the acquisition lacked these controls, procedures and policies;
	•		The need to integrate acquired businesses’ accounting, management information, human resources and other administrative systems to permit effective management;
	•		Inability to retain employees from businesses the Company acquires;
	•		Inability to maintain relationships with customers of the acquired business;
	•		Write-offs or impairment charges relating to goodwill and other intangible assets from acquisitions; and
	•		Unanticipated or unknown liabilities relating to acquired businesses.

          The Company could experience labor disputes that could lead to loss of sales or expense variations. At April 30, 2007, approximately 39% of the Company’s employees were subject to various local collective bargaining agreements. Some collective bargaining agreements will expire or become subject to renegotiation during fiscal year 2007. In addition, the Company is facing a number of union organizing drives. When one or more of the Company’s major collective bargaining agreements becomes subject to renegotiation or when the Company faces union organizing drives, the Company and the union may disagree on important issues which, in turn, could lead to a strike, work slowdown or other job actions at one or more of the Company’s locations. In a market where the Company and a number of major competitors are unionized but other competitors are not unionized, the Company could lose customers to competitors who are not unionized. A strike, work slowdown or other job action could in some cases disrupt the Company from providing its services, resulting in reduced revenue. If declines in customer service occur or if the Company’s customers are targeted for sympathy strikes by other unionized workers, contract cancellations could result. The result of negotiating a first time agreement or renegotiating an existing collective bargaining agreement could be a substantial increase in labor and benefits expenses that the Company could be unable to pass through to its customers for some period of time, if at all.

     A decline in commercial office building occupancy and rental rates could affect the Company’s Sales and profitability. The Company’s Sales directly depend on commercial real estate occupancy levels. Decreases in occupancy levels reduce demand and also create pricing pressures on building maintenance and other services provided by the Company. In certain geographic areas and service segments, the Company’s most profitable Sales are known as tag jobs, which are services performed for tenants in buildings in which it performs building services for the property owner or management company. A decline in occupancy rates could result in a decline in fees paid by landlords, as well as tenant work, which would lower Sales and margins. In addition, in those areas of its business where the Company’s workers are unionized, decreases in Sales can be accompanied by relative increases in labor costs if the Company is obligated by collective bargaining agreements to retain workers with seniority and consequently higher compensation levels and cannot pass through these costs to customers.

     The financial difficulties or bankruptcy of one or more of the Company’s major customers could adversely affect results. The Company’s ability to collect its accounts receivable and future Sales depend, in part, on the financial strength of its customers. The Company estimates an allowance for accounts it does not consider collectible and this allowance adversely impacts profitability. In the event customers experience financial difficulty, and particularly if bankruptcy results, profitability is further impacted by the Company’s failure to collect accounts receivable in excess of the estimated allowance. Additionally, the Company’s future Sales would be reduced by the loss of these customers.

     The Company’s success depends on its ability to preserve its long-term relationships with its customers. The Company’s contracts with its customers can generally be terminated upon relatively short notice. However, the business associated with long-term relationships is generally more profitable than that from short-term relationships because the Company incurs start-up costs with many new contracts, particularly for training, operating equipment and uniforms. Once these costs are expensed or fully depreciated over the appropriate periods, the underlying contracts become more profitable. Therefore, the Company’s loss of long-term customers could have an adverse impact on its profitability even if the Company generates equivalent Sales from new customers.

     The Company is subject to intense competition that can constrain its ability to gain business and its profitability. 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 provides nearly all its services under contracts originally obtained through competitive bidding. The low cost of entry to the facility services business has led to strongly competitive markets consisting primarily of regional and local owner-operated companies, with particularly intense competition in the janitorial business in the Southeast and South Central regions of the United States. The Company also competes with the operating divisions of a few large, diversified facility services and manufacturing companies on a national basis. Indirectly, the Company competes with building owners and tenants that can perform internally one or more of the services provided by the Company. These building owners and tenants have a competitive advantage in locations where the Company’s services are subject to sales tax and internal operations are not. Furthermore, competitors may have lower costs because privately owned companies operating in a limited geographic area may have significantly lower labor and overhead costs. These strong competitive pressures could inhibit the Company’s success in bidding for profitable business and its ability to increase prices even as costs rise, thereby reducing margins. Further, if the Company’s Sales decline, the Company may not be able to reduce its expenses correspondingly.

     An increase in costs that the Company cannot pass on to customers could affect profitability. The Company negotiates many contracts under which its customers agree to pay certain costs at rates set by the Company, particularly workers’ compensation and other insurance coverage where the Company self insures much of its risk. If the Company’s actual costs exceed the rates set by the Company, then the Company’s profitability may decline unless it can negotiate increases in these rates. In addition, if the Company’s costs, particularly workers’ compensation and other insurance costs, exceed those of its competitors, the Company may lose business unless it establishes rates that do not fully cover its costs.

          Natural disasters or acts of terrorism could disrupt the Company in providing services. Storms, earthquakes, or other natural disasters or acts of terrorism may result in reduced Sales or property damage. Disasters may also cause economic dislocations throughout the country. In addition, natural disasters or acts of terrorism may increase the volatility of the Company’s results, either due to increased costs caused by the disaster with partial or no corresponding compensation from customers, or, alternatively, increased Sales and profitability related to tag jobs, special projects and other higher margin work necessitated by the disaster. In addition, a significant portion of the Company’s Parking Sales is tied to the numbers of airline passengers and hotel guests and Parking results could be adversely affected if people curtail business and personal travel.

          The Company incurs significant accounting and other control costs that reduce its profitability. As a publicly traded corporation, the Company incurs certain costs to comply with regulatory requirements. If regulatory requirements were to become more stringent or if controls thought to be effective later fail, the Company may be forced to make additional expenditures, the amounts of which could be material. Most of the Company’s competitors are privately owned so its accounting and control costs can be a competitive disadvantage for the Company. Should the Company’s Sales decline or if the Company is unsuccessful at increasing prices to cover higher expenditures for internal controls and audits, its costs associated with regulatory compliance will rise as a percentage of Sales.

          Other issues and uncertainties may include:

	•		Unanticipated adverse jury determinations, judicial rulings or other developments in litigation to which the Company is subject;
	•		New accounting pronouncements or changes in accounting policies;
	•		Changes in U.S. immigration law that raise the Company’s administrative costs;
	•		Labor shortages that adversely affect the Company’s ability to employ entry level personnel;
	•		Legislation or other governmental action that detrimentally impacts the Company’s expenses or reduces sales by adversely affecting the Company’s customers;
	•		A reduction or revocation of the Company’s line of credit that could increase interest expense and the cost of capital;
	•		Low levels of capital investments by customers, which tend to be cyclical in nature, could adversely impact the results of the Company’s Lighting segment; and
	•		The resignation, termination, death or disability of one or more of the Company’s key executives that adversely affects customer retention or day-to-day management of the Company.

          The Company believes that it has the human and financial resources for business success, but future profit and cash flow can be adversely (or advantageously) influenced by a number of factors, including those listed above, any and all of which are inherently difficult to forecast. The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)

Stock Repurchases

     On December 12, 2006, ABM’s Board of Directors authorized the purchase of up to 2,000,000 shares of ABM’s outstanding common stock at any time through October 31, 2006. No stock repurchases were made in the second quarter of 2007.

Item 4. Submission of Matters to a Vote of Security Holders

(a)		The Annual Meeting of Stockholders was held on March 6, 2007.
(b)		The following directors were elected by a vote of stockholders, each to serve for a term ending at the annual meeting in the year 2010: Luke S. Helms, Henry L. Kotkins, Jr. and William W. Steele.

		The following directors remained in office: Linda L. Chavez, Maryellen C. Herringer, Charles T. Horngren, Martinn H. Mandles, Theodore T. Rosenberg and Henrik C. Slipsager.
(c)		The following matters were voted upon at the meeting:

(1)

Proposal 1 – Election of Directors

Nominee		For				Withheld
Luke S. Helms			33,712,637				9,686,435
Henry L. Kotkins, Jr.			42,351,155				1,047,917
William W. Steele			27,141,807				16,257,265

(2) Proposal 2 – Ratification of KPMG LLP as Independent Registered Public Accounting Firm

For		Against		Abstentions		Broker Non-Votes
36,942,497		6,420,308		36,267		0

Item 6. Exhibits

          See Exhibit Index.

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 8, 2007		/s/ George B. Sundby   George B. Sundby
		Executive Vice President, Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX

3.2		Bylaws, as amended May 30, 2007
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EXHIBIT 3.2

ABM INDUSTRIES INCORPORATED

BYLAWS

As Amended May 30, 2007

ARTICLE I
OFFICES
 

Section 1.1. Registered Office. The registered office shall be located in the City of Wilmington, County of New Castle, State of Delaware.

Section 1.2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS
 

Section 2.1. Place of Meeting. All meetings of stockholders shall be held at the principal executive office of the Corporation or at any other place, either within or without the State of Delaware, as may be designated by the Board of Directors.

Section 2.2. Annual Meeting. The annual meeting of stockholders shall be held on such date and at such time as the Board of Directors may designate. At each annual meeting the stockholders shall elect directors to succeed those whose terms expire in that year and to serve until their successors are elected, and shall transact such other business as may properly be brought before the meeting.

Section 2.3. Notice of Shareholder Meetings. Written notice of an annual or special meeting shall be given to each stockholder entitled to vote, not less than ten nor more than sixty days prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage pre-paid, directed to the stockholder at his or her address as it appears on the records of the Corporation.

Section 2.4. Business at Annual Meetings. At an annual meeting of stockholders, only such business shall be conducted as shall have been brought properly before the meeting to be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder (other than the nomination of a person for election as a director, which is governed by Section 3.7 of these Bylaws), the stockholder must have given timely notice in writing

to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received, at the principal executive offices of the Corporation not less than 60 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year’s annual meeting of stockholders; provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such meeting’s anniversary date, notice by the stockholder must be received not later than the close of business on the later of the 60th day prior to such date of mailing of proxy materials or the 10th day following the day on which public announcement of the date of the annual meeting is first made. Such stockholder’s notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at such meeting; (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (iii) the class and number of shares of the Corporation’s stock which are beneficially owned by the stockholder, and by the beneficial owner, if any, on whose behalf the proposal is made; and (iv) any material interest of the stockholder, and of the beneficial owner, if any, on whose behalf the proposal is made, in such business. For purposes of these Bylaws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Bylaw. The chairman of the meeting may, if the facts warrant, determine that the business was not properly brought before the meeting; and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.

Section 2.5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called at any time by the Board of Directors, or by a committee of the Board of Directors that has been duly designated by the Board of Directors and whose power and authority, as provided in a resolution of the Board of Directors, include the power to call such meetings, but such special meetings may not be called by any other person or persons. The business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 2.6. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of the stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, or, if not so specified, at the place where the meeting is

to be held. The list shall also be produced and kept at the time and place of the meeting during the entire meeting, and may be inspected by any stockholder who is present.

Section 2.7. Conduct of Meetings. The Board of Directors may adopt by resolution such rules or regulations for the conduct of meetings of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chair of any meeting of shareholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chair, are appropriate for the proper conduct of the meeting. Unless and to the extent determined by the Board of Directors or the chair of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

Section 2.8. Presiding Officer and Secretary. The chairman of the Board of Directors if present, calls the meetings of the stockholders to order and shall act as the presiding officer thereof. The secretary of the Corporation, if present, shall act as secretary of all meetings of the stockholders. In the absence of the secretary, an assistant secretary if present shall act as secretary of the meetings of the stockholders. In the absence of the secretary or any assistant secretary, the presiding officer may appoint a person to act as secretary of such meeting.

Section 2.9. Adjourned Meetings and Notice. Any stockholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but in the absence of a quorum, no other business may be transacted at such meeting, except as provided in Section 2.10 of these bylaws. When a stockholders’ meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place are announced at the meeting at which the adjournment is taken; except that if the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting.

Section 2.10. Quorum. The holders of a majority of the shares issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation.

Section 2.11. Voting. At all stockholders meetings for elections or votes for any purpose, there must be a quorum present. All elections for directors shall be determined by a plurality of the votes cast. Except as may otherwise be required by law, by the rules or regulations of any stock exchange on which the securities of the Corporation are listed, or by the Certificate of Incorporation, all other matters shall be decided by a majority of the votes cast affirmatively or negatively. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until

adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

Section 2.12. Voting Rights. Except as otherwise provided in the certificate of incorporation and subject to Section 8.4 of these bylaws, each stockholder shall be entitled to one vote, in person or by proxy, for each share of capital stock having voting power held by such stockholder, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office but, if the stockholder fails to specify the number of shares such stockholder is voting affirmatively, it shall be conclusively presumed that the stockholder’s approving vote is with respect to all shares said stockholder is entitled to vote.

Section 2.13. Stockholder Action and Waiver of Notice. Any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened; provided, that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law or these bylaws to be included in the notice but not so included if such objection is expressly made at the meeting.

Section 2.14. Confidential Voting.

(a) Proxies and ballots that identify the votes of specific stockholders shall be kept in absolute confidence by the tabulators and the inspectors of election unless (i) there is an opposing solicitation with respect to the election or removal of Directors, (ii) disclosure is required by applicable law, (iii) a stockholder expressly requests or otherwise authorizes disclosure of the vote(s) cast by that stockholder, or (iv) the Corporation concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes. Otherwise, no person, group or entity (including but not limited to any past, present or prospective director, officer, employee, agent or stockholder of the Corporation) shall be shown, told or given any information about the vote(s) cast by any specific stockholder.

(b) Comments written on proxies, consents or ballots shall be transcribed and provided to the secretary of the Corporation with the name and address of the stockholder. The vote of the stockholder shall not be disclosed at the time any such comment is provided to the secretary except where such vote is included in the comment or disclosure is necessary, in the opinion of the inspector, for an understanding of the comment.

(c) The tabulators and inspectors of election and any authorized agents or other persons engaged in the receipt, count and tabulation of proxies and ballots shall be advised of this Bylaw and instructed to comply herewith.

(d) The inspectors of election shall certify, to the best of their knowledge based on due inquiry, that proxies and ballots have been kept in confidence as required by this Section 2.14.

(e) Nothing in this Bylaw shall prohibit the inspector from making available to the Corporation, during the period prior to any annual or special meeting, information as to which stockholders have not voted and periodic status reports on the aggregate vote.

ARTICLE III
DIRECTORS

Section 3.1. Number of Directors, Election and Term of Office. The number of directors which shall constitute the whole board shall be not less than eight nor more than eleven, the exact number within such limits to be fixed from time to time by resolution of the Board, acting by the vote of not less than a majority of the directors then in office. The Board of Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the Board of Directors, one class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1986, another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1987, and another class to hold office initially for a term expiring at the annual meeting of stockholders to be held in 1988, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.

Section 3.2. Vacancies. If the office of any director becomes vacant for any reason or any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, although less than a quorum, may choose a successor or successors to fill the vacancy or newly created directorship. Any director so chosen shall hold office until the next election of the class for which he or she was chosen and until his or her successor is fully elected and qualified, unless sooner removed. The term “entire board” as used in these bylaws means the total number of directors which the Corporation would have if there were no vacancies.

Section 3.3. Powers. The business and affairs of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders.

Section 3.4 The Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the Board of Directors and stockholders of the Corporation. The Chairman of the Board of Directors shall be a member of the Executive Committee. If an employee of the Corporation, the Chairman shall be an officer of the Corporation. At the request of the President and Chief Executive Officer, the Chairman shall assist him in communications with stockholders, the press and the investment community. The Chairman shall exercise and perform such other powers and duties as may, from time to time, be assigned to him by the Board of Directors or prescribed by these bylaws. In the absence of the Chairman of the Board, or in the event of his inability or refusal to act, the President, if a director of the Corporation, shall perform such duties and exercise such powers.

Section 3.5. Compensation of Directors. The Board of Directors shall have the authority to fix the compensation of directors.

Section 3.6. Resignation. Any director may resign effective upon giving notice in writing or by electronic transmission to the chief executive officer, the secretary, or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective.

Section 3.7. Nominations of Directors. Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders (i) by the Board of Directors or a committee appointed by the Board of Directors authorized to make such nominations or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Bylaw, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Bylaw. Nominations by stockholders shall be made pursuant to notice in writing, delivered or mailed, postage prepaid, to the Secretary of the Corporation and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than 60 days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year’s annual meeting of stockholders, provided, however, that in the event that the date of the meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder must be received not later than the close of business on the later of the 60th day prior to such date of mailing of proxy materials or the 10th day following the day on which public announcement of the date of the meeting is first made; or (ii) in the case of a special meeting at which directors are to be elected, not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement of the date of the meeting and of the nominees proposed by the Board of Directors to be elected at such meeting is first made. Such stockholder’s notice shall set forth (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such

meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated by the Board of Directors; and (v) the written consent of such nominee to serve as a director of the Corporation if elected. At the request of the Board of Directors, or any committee appointed by the Board of Directors authorized to make such nominations, any person nominated by the Board of Directors, or such committee, for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder’s notice of nomination that pertains to the nominee. Notwithstanding anything in this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public statement naming all the nominees for Director or specifying the size of the increased Board of Directors made by the Corporation at least 70 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in these Bylaws. The chairman of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the procedures prescribed in this Bylaw; and if the chairman should so determine, the chairman shall so declare to the meeting, and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder with respect to the matters set forth in this Bylaw.

ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS

Section 4.1. Place of Meeting. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware.

Section 4.2. Organization Meeting. Immediately after each annual meeting of stockholders, the Board of Directors shall hold a regular meeting for the purpose of organization, electing officers and transacting other business. No notice of such meeting need be given. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereafter provided for special

meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

Section 4.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such time and at such place as shall from time to time be determined by the Board of Directors; provided, however, that if the date so designated falls upon a legal holiday, then the meeting shall be held at the same time and place on the next succeeding day which is not a legal holiday. Such regular meetings may be held without notice.

Section 4.4. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, Chairman of the Executive Committee of the Board of Directors, the President or on the written request of any two directors.

Section 4.5. Notice of Special Meetings. Notice of the time and place of special meetings of the Board of Directors shall be delivered to each director by overnight delivery service sent 48 hours before the meeting or by notifying each director of the meeting at least 24 hours prior to the time personally, by telephone, or by electronic transmission. Such notice shall not be necessary if appropriate waivers, consents and/or approvals are filed in accordance with Section 4.6 of these bylaws.

Section 4.6. Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though, transacted at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present, signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 4.7. Quorum. At all meetings of the board, the presence of a majority of the entire board shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meetings at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present may adjourn the meeting without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting.

Section 4.8. Adjournment. Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the vote of a majority of the directors present. Notice of the time and place of the adjourned meeting need not be given to absent directors if said time and place are fixed at the meeting adjourned.

Section 4.9. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

ARTICLE V
COMMITTEES OF DIRECTORS

Section 5.1. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the entire board, establish committees of the Board with such powers, duties and rules of procedures as may be provided by the resolutions of the Board establishing such committees. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors who meets the criteria for membership on such Committee to act at the meeting in the place of any such absent or disqualified member.

Section 5.2. Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors

Section 5.3. Audit Committee. There shall be an Audit Committee comprised of at least three members of the Board. The members will be appointed by and serve at the pleasure of the Board. The Audit Committee shall oversee the corporate financial reporting process and the internal and external audits of the Corporation. The Audit Committee will undertake those specific duties, responsibilities and processes described in the Audit Committee Charter adopted by this Board and such other duties as the Board of Directors from time to time may prescribe.

Section 5.4 Executive Committee. There shall be an Executive Committee of the Board of Directors that shall include a minimum of any three directors, one of whom shall be an independent director, appointed from time to time by the Board. The functions of the Executive Committee shall be to exercise all power and authority of the Board in the management of the business and affairs of the Corporation, except as may be provided in the resolution establishing the Executive Committee, delegated to another Committee of the Board in that Committee’s Charter or in another resolution of the Board or as limited by the General Corporation Law of the State of Delaware.

Section 5.5. Compensation Committee. There shall be a Compensation Committee of the Board of Directors that shall include a minimum of any three independent directors appointed from time to time by the Board. The functions of the Executive Officer

Compensation & Stock Option Committee shall be to review and recommend to the Board the compensation and other contractual terms and conditions for employment of the Corporation’s executive officers and administer the Corporation’s equity-based compensation plans. The Compensation Committee will undertake those specific duties, responsibilities and processes described in the Compensation Committee Charter adopted by this Board and such other duties as the Board of Directors from time to time may prescribe.