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, 1997
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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
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ABM INDUSTRIES INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 94-1369354
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
50 FREMONT STREET, 26TH FLOOR, SAN FRANCISCO, CALIFORNIA 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 597-4500
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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, 1997: 19,980,753
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
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OCTOBER 31, JANUARY 31,
ASSETS: 1996 1997
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,567 $ 6,361
Accounts receivable, net 183,716 185,352
Inventories 16,492 19,207
Deferred income taxes 11,684 12,429
Prepaid expenses and other current assets 20,296 21,600
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Total current assets 233,755 244,949
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INVESTMENTS AND LONG-TERM RECEIVABLES 15,941 15,876
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and buildings 4,750 4,981
Transportation equipment 9,750 10,236
Machinery and other equipment 39,899 40,437
Leasehold improvements 8,202 8,418
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62,601 64,072
Less accumulated depreciation and amortization (40,031) (41,445)
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Property, plant and equipment, net 22,570 22,627
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INTANGIBLE ASSETS - NET 76,366 80,763
DEFERRED INCOME TAXES 22,046 22,204
OTHER ASSETS 9,092 8,473
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$ 379,770 $ 394,892
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(continued)
1
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
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OCTOBER 31, JANUARY 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: 1996 1997
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(Unaudited)
CURRENT LIABILITIES:
Current portion of long-term debt $ 902 $ 933
Bank overdraft 4,935 6,026
Trade accounts payable 27,091 26,555
Income taxes payable 1,864 5,921
Accrued Liabilities:
Compensation 27,862 24,443
Taxes - other than income 9,952 12,338
Insurance claims 23,256 23,633
Other 17,936 21,773
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Total current liabilities 113,798 121,622
Long-Term Debt (less current portion) 33,664 27,763
Retirement plans 10,140 11,875
Insurance claims 51,475 52,149
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Total Liabilities 209,077 213,409
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SERIES B 8% SENIOR REDEEMABLE CUMULATIVE
PREFERRED STOCK 6,400 6,400
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 500,000
shares authorized; none issued _ _
Common stock, $.01 par value, 28,000,000 shares
authorized; 19,489,000 and 19,981,000 shares
issued and outstanding at October 31, 1996
and January 31, 1997, respectively 195 200
Additional capital 48,548 56,619
Retained earnings 115,550 118,264
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Total stockholders' equity 164,293 175,083
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$ 379,770 $ 394,892
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2
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except per Share Amounts)
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THREE MONTHS ENDED
JANUARY 31
1996 1997
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REVENUES AND OTHER INCOME $ 254,401 $ 291,638
EXPENSES:
Operating Expenses and Cost of Goods Sold 220,458 252,751
Selling, General and Administrative 25,992 29,645
Interest 849 897
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Total Expenses 247,299 283,293
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INCOME BEFORE INCOME TAXES 7,102 8,345
INCOME TAXES 3,054 3,505
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NET INCOME $ 4,048 $ 4,840
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EARNINGS PER COMMON SHARE $ 0.20 $ 0.22
DIVIDENDS PER COMMON SHARE $ 0.0875 $ 0.10
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 19,796 21,416
Per share amounts have been restated to retroactively reflect the
two-for-one common stock split on July 15, 1996
3
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1996 AND 1997
(In Thousands)
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JANUARY 31, JANUARY 31,
1996 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 249,679 $ 293,224
Other operating cash receipts 573 743
Interest received 94 151
Cash paid to suppliers and employees (247,036) (277,882)
Interest paid (1,034) (799)
Income taxes paid (820) (351)
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Net cash provided by operating activities 1,456 15,086
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,216) (1,976)
Proceeds from sale of assets 221 144
(Increase) decrease in investments and
long-term receivable (4,852) 65
Intangible assets acquired (926) (791)
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Net cash used in investing activities (8,773) (2,558)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued 1,478 1,976
Dividends paid (1,776) (2,126)
(Decrease) increase in cash overdraft (434) 1,086
Increase in notes payable - 31
Long-term borrowings 32,000 14,112
Repayments of long-term borrowings (24,013) (22,813)
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Net cash provided by (used in) financing
activities 7,255 (7,734)
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NET (DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (62) 4,794
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 1,840 1,567
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,778 $ 6,361
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4
ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, 1996 AND 1997
(In Thousands)
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JANUARY 31, JANUARY 31,
1996 1997
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RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 4,048 $ 4,840
Adjustments:
Depreciation and amortization 3,092 3,783
Provision for bad debts 448 497
Gain on sale of assets (164) (10)
Deferred income taxes (959) (903)
(Increase) decrease in accounts receivable (4,427) 1,291
Increase in inventories (98) (2,379)
Increase in prepaid expenses and other
current assets (688) (1,223)
(Increase) decrease in other assets (1,996) 619
Increase in income taxes payable 3,193 4,057
Increase in retirement plans accrual 644 1,735
Increase in insurance claims liability 1,077 1,051
(Decrease) increase in accounts payable and
other accrued liabilities (2,714) 1,728
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Total Adjustments to net income (2,592) 10,246
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Net Cash Provided by Operating Activities $ 1,456 $ 15,086
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5
ABM INDUSTRIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all material adjustments which are necessary to
present fairly the Company's financial position as of January 31, 1997 and the
results of operations and cash flows for the three months then ended. These
adjustments are of a normal, recurring nature.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Form 10K filed for
the fiscal year ended October 31, 1996 with the Securities and Exchange
Commission.
2. EARNINGS PER SHARE
NET INCOME PER COMMON SHARE: Net income per common and common equivalent
share, after the reduction for preferred stock dividends in the amount of
$128,000 during the three months ended January 31, 1997, is based on the
weighted average number of shares outstanding during the year and the common
stock equivalents that have a dilutive effect. Net income per common share
assuming full dilution is not significantly different than net income per share
as reported.
On June 18, 1996, the Company's Board of Directors approved a two-for-one stock
split, payable to shareholders of record as of the close of business on July 15,
1996. A total of 9,669,000 shares of common stock were issued in connection
with the stock split. All share and per share amounts have been restated to
retroactively reflect the common stock split.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Funds provided from operations and bank borrowings have historically been
the sources for meeting working capital requirements, financing capital
expenditures and acquisitions, and paying cash dividends. Management believes
that funds from these sources will remain available and adequately serve the
Company's liquidity needs. The Company has an unsecured revolving credit
agreement with a syndicate of U.S. banks. This agreement has a $125 million
line of credit expiring September 22, 1998, which at the Company's option, may
be extended one year. At the Company's option, the credit facility provides
interest at the prime rate or IBOR+.45%. As of January 31, 1997, the total
amount outstanding was approximately $83 million, which was comprised of loans
in the amount of $22 million and standby letters of credit of $61 million. This
agreement requires the Company to meet certain financial ratios and places some
limitations on dividend payments and outside borrowing. The Company is
prohibited from declaring or paying cash dividends exceeding 50% of its net
income for any fiscal year. In February 1996, the Company entered into a loan
agreement with a major U.S. bank which provides a seven-year term loan of $5
million at a fixed interest rate of 6.78 %. Annual payments of principal and
interest in varying amounts are due February 15, 1997 through February 15, 2003.
The Company also has a 9.35% note payable to an insurance company with a
remaining amount of $1,272,000. Interest is payable monthly and principal
amounts of $636,000 are due annually through October 1, 1998. The Company's
effective interest rate for all borrowings for the quarter ended January 31,
1997 was 6.89%.
At January 31, 1997, working capital was $123.3 million, as compared to $120.0
million at October 31, 1996.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years had no material
impact on the financial statements of the Company. The Company attempts to
recover inflationary costs by increasing sales prices to the extent permitted by
contracts and competition.
7
ENVIRONMENTAL MATTERS
The nature of the Company's operations, primarily services, would not
ordinarily involve it in environmental contamination. However, the Company's
operations are subject to various federal, state and/or local laws regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment, such as discharge into soil, water and air, and
the generation, handling, storage, transportation and disposal of waste and
hazardous substances.
These laws generally have the effect of increasing costs and potential
liabilities associated with the conduct of the Company's operations, although
historically they have not had a material adverse effect on the Company's
financial position or its results of operations.
The Company is currently involved in three proceedings relating to
environmental matters: one involving alleged potential groundwater contamination
at a Company facility in Florida; one involving alleged soil contamination at a
former Company facility in Arizona; and, one involving a claim under Proposition
65 in California relating to an alleged failure to post statutory warning signs
in Company operated parking garages. While it is difficult to predict the
ultimate outcome of these matters, based on information currently available,
management believes that none of these matters, individually or in the
aggregate, are reasonably likely to have a material adverse affect on the
Company's financial position or its results of operations.
ACQUISITIONS
The operating results of businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition.
Effective November 1, 1996, the Company, through one of its subsidiaries,
acquired the operations and net assets of Sica Electrical and Maintenance Corp.,
of Ozone Park, New York. Sica Electrical and Maintenance Corp. is an electrical
and lighting maintenance company which operates in the greater New York City
metropolitan area, New Jersey, up-state New York, Pennsylvania, and Connecticut.
In connection with this acquisition, the Company issued 348,323 of its common
shares at the time of closing and will make additional payments in common shares
over a five-year period based on the operating profits (income before taxes and
interest) of the acquired business. A maximum of 348,323 common shares may be
issued in connection with future payments. Effective November 1, 1996, the
Company's earnings per common share calculation includes the 696,646 shares
issued
8
and to be issued under the contract with the sellers. The Company estimates
that in fiscal 1997 this acquisition will contribute approximately $15 million
in revenues.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company. All information in the
discussion and references to the years and quarters are based on the Company's
fiscal year and first quarter which end on October 31 and January 31,
respectively.
THREE MONTHS ENDED JANUARY 31, 1997 VS. THREE MONTHS ENDED JANUARY 31, 1996
Revenues and other income (hereafter called revenues) for the first three
months of fiscal year 1997 were $292 million compared to $254 million in 1996, a
15% increase over the same quarter of the prior year. This growth was
attributable to new business and price increases as well as revenues generated
from acquisitions. For the quarter ended January 31, 1997, the increase in
revenues relating to acquisitions made during fiscal 1996 was approximately $11
million on a total revenue increase of $38 million.
Net income for the first quarter of 1997 was $4,840,000, an increase of
20%, compared to the net income of $4,048,000 for the first quarter of 1996.
Due to the increase in the average number of common and common equivalent shares
outstanding, earnings per share rose 10% to 22 cents for the first quarter of
1997 compared to 20 cents for the same period in 1996. Cost controls, coupled
with revenue growth, enabled the Company to realize improved earnings. As a
percentage of revenues, operating expenses and cost of goods sold were 86.7% for
the first quarter of 1997, the same percentage as in 1996. Consequently, as a
percentage of revenues, the Company's gross profit (revenue minus operating
expenses and cost of goods sold) of 13.3% was the same as the first quarter of
1996. The gross profit percentage remained constant despite stiff competition
in the market place faced by most of the Company's divisions.
Selling, general and administrative expenses for the first three months of
fiscal year 1997 were $29.6 million compared to $26.0 million for the
corresponding three months of fiscal year 1996. As a percentage of revenues,
selling, general and administrative expenses decreased slightly, from 10.21% for
the three months ended January 31, 1996, to 10.16% for the same period in 1997
primarily as a result of management's cost containment measures. The increase
in the dollar amount, $3.7 million, of selling, general and administrative
expenses for the three months ended January 31, 1997, compared to the same
period in 1996, is primarily due to expenses
9
necessary for growth and to a lesser extent various expenses associated with
acquisitions.
Interest expense was $897,000 for the first three months of fiscal year
1997 compared to $849,000 in 1996, an increase of $48,000 over the
same period of the prior fiscal year. This increase was primarily due to higher
weighted average borrowings during the first quarter of 1997.
The pre-tax income for the first quarter of 1997 was $8,345,000 compared to
$7,102,000, an increase of 18% over the same quarter of 1996. The growth in
pre-tax income outpaced the revenue growth for the current quarter of 1997 due
primarily to the realization of operating economies related to the integration
of recent acquisitions with existing operations which resulted in lower selling,
general and administrative expenses as a percentage of revenue.
The estimated effective income tax rate for the first three months of 1997
was 42%, compared to 43% in the first three months of 1996. The lower tax rate
was due to an expected increase in tax credits.
The results of operations from the Company's three industry segments and
its eight operating divisions for the three months ended January 31, 1997, as
compared to the three months ended January 31, 1996, are more fully described
below:
Revenues of the Janitorial Divisions segment, which includes American
Building Maintenance (also known as ABM Janitorial Services) and Easterday
Janitorial Supply, for the first quarter of fiscal year 1997 were $166 million,
an increase of approximately $24 million, or 17% over the first quarter of
fiscal 1996, while its operating profits increased by 14% over the comparable
quarter of 1996. This is the Company's largest segment and accounted for
approximately 57% of the Company's total revenues for the current quarter.
AMERICAN BUILDING MAINTENANCE'S revenues increased by 17% during the first
quarter of fiscal year 1997 as compared to the same quarter of 1996 both as a
result of several acquisitions made during the latter half of fiscal year 1996
and revenue growth in nearly all of its regions. This Division's operating
profits increased 13% when compared to the same period last year. The increase
in operating profits is principally due to reductions in insurance and labor-
related expenses. The Division also successfully controlled its selling,
general and administrative expenses relative to the increase in revenues.
EASTERDAY JANITORIAL SUPPLY'S first quarter revenue increased by approximately
14% compared to the same quarter in 1996 generally due to strong sales in the
Los Angeles and San Francisco markets. An increase of 22% in operating profits
was achieved because of higher sales and an improved gross margin percentage.
10
Revenues of the Public Service Divisions segment, which includes Ampco
System Parking and American Commercial Security Services (also known as "ACSS"
and "ABM Security Services"), for the first quarter of 1997 were
approximately $58 million, a 9% increase over the same quarter of fiscal year
1996. Public Service Divisions accounted for approximately 20% of the
Company's revenues. However, the operating profits of this segment decreased by
7% as both of its divisions reported lower profits when compared to the prior
year quarter. AMERICAN COMMERCIAL SECURITY SERVICES reported an increase in
revenues of 16%, but its profits were down by 3% in the first quarter of 1997
compared to the same period of 1996. The revenue growth was largely due to an
acquisition in Minneapolis in May 1996 as well as other new business,
particularly in its Southern California Region. The small decrease in operating
profit was primarily due to increased labor costs related to the acquisition in
Minneapolis and an increase in unbillable overtime throughout the Division.
AMPCO SYSTEM PARKING Division's revenues increased by 4%, while its profits
declined 11% during the first quarter of fiscal year 1997 compared to the first
quarter of 1996. The increase in revenues was mostly due to growth in its
airport business. The operating profit decrease was due for the most part to
lower profit margins as a result of increased legal and insurance costs in the
division's Northern California and Pacific Northwest operations, as well as
replacement of several leases in Colorado upon expiration with less profitable
management agreements.
The Company's Technical Divisions segment includes Amtech Elevator Services, ABM
Engineering Services, Amtech Lighting Services and CommAir Mechanical Services.
This segment reported revenues of $68 million, which represent approximately 23%
of the Company's revenues for the first quarter of fiscal year 1997. This
represents an increase of approximately 15% over the same quarter of last year
due to increases in revenues reported by its all divisions. Operating profit of
this segment increased 62% compared to the first quarter of 1996 due to
significant increases in operating profits of its Elevator and Lighting
divisions, offset by small decreases in its CommAir Mechanical and ABM
Engineering divisions. Revenues for AMTECH ELEVATOR SERVICES were up by 15% for
the first quarter of fiscal year 1997 over the same quarter of 1996 largely due
to an increased customer base in the maintenance and repair sector. The
Division posted a dramatic increase in operating profit for the first quarter
compared to the corresponding quarter of fiscal year 1996. This increase can be
attributed primarily to the sale during the second quarter of 1996 of its
Mexican subsidiary, which incurred losses in the same quarter of the prior year.
ABM ENGINEERING SERVICES' revenues increased by 8% but its operating profits
declined 8% for the first quarter of 1997 compared to the same period in 1996.
Revenue increases were recorded by most of its regions reflecting increased
penetration into new markets as well as increased sales to existing customers.
The decrease in operating profits resulted from a combination of lower margins
on fixed price contracts, increased insurance costs, and an increase in selling,
general and administrative costs. AMTECH LIGHTING
11
SERVICES Division reported a 23% revenue increase due almost entirely to the
acquisition of Sica Electrical and Maintenance of New York, which was effective
November 1, 1996. Operating profits increased by 138% during the first quarter
of fiscal year 1997 compared to the same quarter of the prior year primarily due
to this acquisition and lower direct costs. COMMAIR MECHANICAL SERVICES
Division's revenues increased by 16% resulting primarily from additional energy
management and installation contracts. Operating profits for the first quarter
of 1997 decreased by 9% from the prior year first quarter results. This
decrease for the current year quarter was a result of an increase in selling,
general and administrative expenses proportionately greater than the increase in
gross margin.
12
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, 1997.
13
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 14, 1997 /s/ David H. Hebble
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Vice President, Principal
Financial Officer
14
5
1,000
3-MOS
OCT-31-1997
JAN-31-1997
6,631
0
185,352
0
19,207
244,949
64,072
41,445
394,892
121,622
0
0
6,400
200
174,883
394,892
291,638
291,638
252,751
252,751
0
0
897
8,345
3,505
4,840
0
0
0
4,840
0.22
0.22
