SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------------------
FORM 10 Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
----------------- -------------------
Commission file Number 1-8929
ABM INDUSTRIES INCORPORATED
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 FREMONT STREET, 26TH FLOOR, SAN FRANCISCO, CALIFORNIA 94105
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415)597-4500
-------------
Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2)has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Number of shares of Common Stock outstanding as of January 31, 1995: 9,133,098
-1-
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- ------------------------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
ASSETS 1994 1995
- ------------------------------------------------------------------------------------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 7,368 $ 3,002
Accounts and other receivables, net 140,788 146,060
Inventories and supplies 17,420 18,470
Deferred income taxes 11,638 11,875
Prepaid expenses 12,228 13,580
- ------------------------------------------------------------------------------------------------
Total current assets 189,442 192,987
- ------------------------------------------------------------------------------------------------
INVESTMENTS AND LONG-TERM RECEIVABLES 6,841 6,829
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 6,063 5,561
Transportation and equipment 8,600 9,228
Machinery and other equipment 33,187 33,249
Leasehold improvements 9,052 9,579
- ------------------------------------------------------------------------------------------------
56,902 57,617
Less accumulated depreciation and amortization (37,083) (37,098)
- ------------------------------------------------------------------------------------------------
Property, plant and equipment, net 19,819 20,519
- ------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS 61,373 65,905
DEFERRED INCOME TAXES 14,982 15,337
OTHER ASSETS 7,013 8,372
- ------------------------------------------------------------------------------------------------
$ 299,470 $ 309,949
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
-2-
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- -------------------------------------------------------------------------------
OCTOBER 31, JANUARY 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995
- -------------------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $ 683 $ 679
Accounts payable, trade 26,187 22,529
Income taxes payable 1,961 4,288
Accrued Liabilities:
Compensation 19,807 18,562
Taxes - other than income 8,693 11,526
Insurance claims 27,185 27,948
Other 14,761 15,594
- -------------------------------------------------------------------------------
Total current liabilities 99,277 101,126
- -------------------------------------------------------------------------------
LONG-TERM DEBT (LESS CURRENT PORTION) 25,254 29,247
RETIREMENT PLANS 5,978 6,425
INSURANCE CLAIMS 38,230 39,302
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.1 par value, 500,000 shares
authorized; none issued - -
Common stock, $.01 par value, 12,000,000 shares
authorized; 9,049,000 and 9,133,000 shares
issued and outstanding at October 31, 1994
and January 31, 1995, respectively 90 91
Additional capital 35,334 36,561
Retained earnings 88,907 90,797
- -------------------------------------------------------------------------------
Total stockholders' equity 124,331 127,449
- -------------------------------------------------------------------------------
$ 299,470 $ 309,949
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-3-
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except per Share Amounts)
- -----------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
1994 1995
- -----------------------------------------------------------------------------
REVENUES AND OTHER INCOME $ 210,839 $ 232,062
EXPENSES:
Operating Expenses and Cost of Goods Sold 181,476 199,923
Selling and Administrative 23,772 25,558
Interest 717 741
- -----------------------------------------------------------------------------
Total Expenses 205,965 226,222
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,874 5,840
INCOME TAXES 2,047 2,453
- -----------------------------------------------------------------------------
NET INCOME $ 2,827 $ 3,387
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 0.31 $ 0.35
DIVIDENDS PER COMMON SHARE $ 0.125 $ 0.150
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,803 9,403
-4-
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
- --------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
1994 1995
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 206,700 $ 225,966
Other operating cash receipts 475 522
Interest received 109 113
Cash paid to suppliers and employees (201,930) (225,405)
Interest paid (868) (746)
Income taxes paid (939) (718)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 3,547 (268)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,667) (2,374)
Proceeds from sale of assets 367 138
(Increase) decrease in investments and long-term receivables (807) 12
Intangibles resulting from acquisitions (517) (5,594)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,624) (7,818)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 916 1,228
Dividends paid (1,233) (1,497)
Decrease in cash overdraft (4,231) 0
Increase(decrease) in notes payable 1,988 (4)
Long-term borrowings 14,000 14,000
Repayments of long-term borrowings (12,000) (10,007)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (560) 3,720
- ----------------------------------------------------------------------------------------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (637) (4,366)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 1,688 7,368
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,051 $ 3,002
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 2,827 $ 3,387
Adjustments:
Depreciation and amortization 2,080 2,649
Provision for bad debts 458 407
Gain on sale of assets (54) (51)
(Increase) in accounts and other receivables (2,954) (5,679)
(Increase) decrease in inventories and supplies 297 (1,050)
(Increase) in prepaid expenses (331) (1,352)
(Increase) decrease in other assets 387 (1,359)
Increase (decrease) in deferred income taxes 537 (592)
Increase in income taxes payable 571 2,327
Increase in retirement plans accrual 320 447
Increase (decrease) in insurance claims liablilty (516) 1,835
(Decrease) in accounts payable and other accrued liabilities (75) (1,237)
- ----------------------------------------------------------------------------------------------------
Total Adjustments to net income 720 (3,655)
- ----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 3,547 $ (268)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
-5-
ABM INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all material adjustments which are necessary to
present fairly the financial position as of January 31, 1995 and the results of
operations and cash flows for the three months then ended.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's 1994
Form 10K filed with the Securities and Exchange Commission.
2. EARNINGS PER SHARE
NET INCOME PER COMMON SHARE: Net income per common and common equivalent
share, after the reduction for preferred stock dividends in the amount of
$128,000 during the three months ended January 31, 1995, is based on the
weighted average number of shares outstanding during the year and the common
stock equivalents that have a dilutive effect. Net income per common share
assuming full dilution is not significantly different than net income per share
as shown.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures, acquisitions, and paying cash dividends. Management believes that
funds from these sources will remain available and adequately serve the
Company's liquidity needs. On September 22, 1994, the Company signed an
unsecured revolving credit agreement with a syndicate of U.S. banks. This
agreement expires September 22, 1998, and at the Company's option, may be
extended one year. The credit facility provides, at the Company's option,
interest at the prime rate or IBOR+.45%. As of January 31, 1995, the total
amount outstanding under this facility was approximately $73 million which was
comprised of loans in the amount of $27 million and standby letters of credit of
$46 million. The effective interest rate on bank borrowings for the quarter
ended January 31, 1995 was approximately 7%. This agreement requires the
Company to meet certain financial ratios and places some limitations on dividend
payments and outside borrowing. The Company is prohibited from declaring or
paying cash dividends exceeding 50% of its net income for any fiscal year.
In connection with the acquisition of System Parking, the Company assumed a
note payable in the amount of $3,818,000. Interest on this note is payable at
an annual rate of 9.35% with principal amounts of $636,000 due annually through
October 1, 1998. At January 31, 1995, the balance remaining on this note was
$2,545,000.
At January 31, 1995, working capital was $91.9 million, as compared to
$90.2 million at October 31, 1994.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years had no material
impact on the financial statements of the Company. The Company attempts to
recover inflationary costs by increasing sales prices to the extent permitted by
contracts and competition.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and/or local
laws regulating the discharge of
-7-
materials into the environment or otherwise relating to the protection of the
environment, such as discharge into soil, water and air, and the generation,
handling, storage, transportation and disposal of waste and hazardous
substances.
These laws have the effect of increasing costs and potential liabilities
associated with the conduct of the Company's operations, although historically
they have not had a material adverse effect on the Company's financial position
or its results of operations.
The Company is currently involved in various stages of environmental
investigation and/or remediation relating to certain current and former company
facilities. While it is difficult to predict the ultimate outcome of these
investigations, or to assess the likelihood and scope of further investigation
and remediation activities, based on information currently available, management
believes that the costs of these matters are not reasonably likely to have a
material adverse affect on the Company's financial position or its results of
operations.
ACQUISITIONS
Effective November 1, 1994, the Company's ABM Janitorial Services Division
acquired substantially all of the maintenance services contracts from Quality
Building Maintenance, Inc. of Seattle for a cash downpayment made at the time of
closing plus annual contingent payments based upon gross profit of acquired
contracts to be made over a four-year period. This acquisition is expected to
add approximately $3.5 million in annual revenues for ABM Janitorial Services'
Northwest Region based in Seattle. As of January 1, 1995, the Company's Ampco
System Parking Division acquired the parking operations of Pansini Corporation
for a cash downpayment made at the time of the closing plus annual contingent
payments based upon gross profit of acquired contracts to be made over a five-
year period. The parking contracts obtained as a result of this acquisition are
expected to add approximately 100 facilities in California and Hawaii and
approximately $10 million in annual revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1995 VS. THREE MONTHS ENDED JANUARY 31, 1994
The following discussion should be read in conjunction with the
consolidated financial statements of the Company.
-8-
All information in the discussion and references to the years and quarters are
based on the Company's fiscal year and first quarter which end on October 31 and
January 31, respectively.
Revenues and other income (hereafter called revenues) for the first three
months of fiscal year 1995 were $232 million compared to $211 million in 1994, a
10% increase over the same quarter of the prior year. The 10% growth in
revenues for the first quarter of 1995 over the same quarter of the prior year
was attributable to volume and price increases as well as revenues generated
from acquisitions. Net income for the first quarter of 1995 was $3,387,000, an
increase of 20%, compared to the net income of $2,827,000 for the first quarter
of 1994. Cost controls, coupled with the revenue growth, enabled the Company to
realize improved earnings. However, due to the increase in the average number
of common and common equivalent shares outstanding, earnings per share rose 13%
to 35 cents for the first quarter of 1995 compared to 31 cents for the same
period in 1994. As a percentage of revenues, operating expenses and cost of
goods sold remained fairly constant at 86.1% for the first quarter of both 1995
and 1994. Consequently, as a percentage of revenues, the Company maintained its
gross profit (revenue minus operating expenses and cost of goods sold)
consistent with the prior year's quarter at 13.9% even though all divisions face
stiff competition under continued pricing pressures in the market place.
Selling and administrative expense for the first three months of fiscal
year 1995 was $25.6 million compared to $23.8 million for the corresponding
three months of fiscal year 1994. As a percentage of revenues, selling and
administrative expense decreased from 11.3% for the three months ended January
31, 1994, to 11% for the same period in 1995 primarily as a result of
management's cost containment measures. The increase in the dollar amount of
selling and administrative expense for the three months ended January 31, 1995,
compared to the same period in 1994, is primarily due to revenue growth and
expenses associated with acquisitions.
Interest expense was $741,000 for the first three months of fiscal year
1995 compared to $717,000 in 1994, an increase of $24,000 over the same period
of the prior fiscal year. Interest expense increased due to higher bank
borrowings during the three months ended January 31, 1995, as compared to 1994.
The effective income tax rate for the first three months of both fiscal
year 1995 and 1994 was 42%.
-9-
The pre-tax income for the first quarter of 1995 was $5,840,000 compared to
$4,874,000, or an increase of 20%, for the same quarter of 1994. The growth in
pre-tax income outpaced the revenue growth for the current quarter of 1995 due
primarily to benefits arising from the realization of certain operating
consolidation economies from recent acquisitions and partly due to lower selling
and administrative expenses as a percentage of revenue resulting from continued
cost containment efforts.
The results of operations from the Company's three industry segments and
its eight operating divisions for the three months ended January 31, 1995, as
compared to the three months ended January 31, 1994, are more fully described
below:
Revenues of the Janitorial Divisions of the first quarter of fiscal year
1995 were $124 million, an increase of approximately $10 million, or 9%
over the first quarter of fiscal 1994, while its operating profits
increased by 4% over the comparable quarter of 1994. Janitorial Divisions
accounted for approximately 54% of the Company's revenues for the current
quarter. ABM Janitorial Services' revenues increased by 9% during the
first quarter of fiscal year 1995 as compared to the same quarter of 1994
both as a result of acquisitions made during the latter half of fiscal year
1994 and revenue growth throughout its regions except its Canadian and
Southwest Regions. The Division's operating profits only increased 3% when
compared to the same period last year. When compared to the 9% revenue
increase, the lower 3% increase in operating profits is principally due to
increases in labor-related and insurance expenses and higher selling and
administrative expenses associated with acquisitions and marketing efforts.
As a result, the Division was not able to realize better operating profits.
Easterday Janitorial Supply Division's first quarter revenue increased by
approximately 7% compared to the same quarter in 1994 generally due to a
volume increase by obtaining new customers. An increase of 47% in
operating profits results from increased sales and a reduction in selling
and administrative expenses offset to some degree by higher cost of
material, especially paper products and plastic liners.
Amtech Divisions reported revenues of $61 million, which represent
approximately 26% of the Company's revenues for the first quarter of fiscal
year 1995, an increase of approximately 9% over the same quarter of last
year. Amtech Divisions' profit increased 69%
-10-
compared to the first quarter of fiscal year 1994. CommAir Mechanical
Services Division's operating profits for the first quarter of 1995
increased by 34%, despite a revenue drop of 14%. Improved gross profit
margins and a reduction in selling and administrative expenses accounted
for the profit increase. Amtech Lighting Services Division reported a 32%
revenue increase by a continued expansion in the Southeast and an expanded
customer contract base from its existing customers. Operating profits
increased by 23%, below the level of increase in revenues, during the first
quarter of fiscal year 1995 because its gross margin percentage declined
due to higher material costs. The growth in revenues also outpaced the
Division's operating profits because of proportionately higher selling and
administrative expenses associated with its market expansion efforts.
Revenues for the Amtech Elevator Services Division were down by 4 % for the
first quarter of fiscal year 1995 over the same quarter of 1994 largely due
to a decline in the construction business. The Division posted a three-
fold higher operating profit for the first quarter compared to the
corresponding quarter of fiscal year 1994 primarily due to higher gross
margins and from management's decision to de-emphasize the construction
business where margins are historically lower. Major cost reductions and
closing of unprofitable locations, as well as improved market conditions,
enabled this Division to return to an acceptable level of profitability
even though profits were negatively impacted by currency translation losses
of its Mexican subsidiary. ABM Engineering Services Division's revenues
increased by 21% and it reported a 69% increase in operating profits the
first quarter of 1995 compared to the same period in 1994. Revenue
increases generally were recorded by all its regions primarily reflecting
increased penetration into new markets as well as from price increases to
its existing customers. The increase in operating profits resulted from
increased revenues and reductions in payroll related costs including
insurance expenses and containment of selling and administrative expenses.
Revenues of the Other Divisions for the first quarter of 1995 were
approximately $47 million, a 16% increase over the same quarter of fiscal
year 1994. Other Divisions accounted for approximately 20% of the
Company's revenues. The operating profits of Other Divisions were down by
7% primarily due to the Company's ASI Security Services Division. Ampco
System
-11-
Parking Division's revenues increased by 23% and its profits remained
virtually flat during the first quarter of fiscal year 1995. The increase
inrevenues resulted from recent acquisitions as well as procuring parking
management contracts of several major airports. Operating profits were
flat primarily due to loss of certain large contracts in its Northeast
Region, expenses associated with recent acquisitions and a lack of
improvement in office vacancy rates in Southern California. ASI Security
Services reported an increase in revenues of 6% but its profits were down
by 13% in the first quarter of 1995 compared to the same period of 1994.
The revenue growth was largely due to obtaining a large customer in San
Francisco and increases posted by its South Central Region. The decline in
operating income during the first quarter as compared to the first quarter
of the prior year was caused by higher payroll related costs including
insurance and an impact from erosion of gross margins due to competitive
bidding.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27.1 - Financial Data Schedule.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended January 31, 1995.
-12-
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
March 15, 1995 /s/ David H. Hebble
- -------------- -------------------------------------
Vice President, Principal Financial
and Accounting Officer
-13-
5
1,000
3-MOS
OCT-31-1995
NOV-01-1994
JAN-31-1995
3,002
0
146,060
0
18,470
192,987
57,617
37,098
309,949
101,126
0
91
0
6,400
127,358
309,949
232,062
232,062
199,923
199,923
25,558
0
741
5,840
2,453
3,387
0
0
0
3,387
0.35
0.35
