UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001
OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 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 incorporation or (IRS Employer Identification Number)
organization)
160 PACIFIC AVENUE, SUITE 222, SAN FRANCISCO, CALIFORNIA 94111
(Address and zip code of principal executive offices)
TELEPHONE: 415/733-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
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 such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. _
As of November 30, 2001, nonaffiliates of the registrant beneficially owned
19,416,422 shares of the registrant's common stock with an aggregate market
value of $586,375,944.
As of November 30, 2001, there were 24,444,266 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used by the Company in connection with its
2002 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K/A.
ABM INDUSTRIES INCORPORATED
FORM 10-K
For the Fiscal Year Ended October 31, 2001
TABLE OF CONTENTS
PAGE
----
PART I
Item 1 Business.................................................... 3
Executive Officers of the Company........................... 6
Item 2 Properties.................................................. 7
Item 3 Legal Proceedings........................................... 7
Item 4 Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6 Selected Consolidated Financial Data........................ 8
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 7A Qualitative and Quantitative Disclosures About Market
Risk........................................................ 14
Item 8 Financial Statements and Financial Statement Schedule....... 15
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 30
PART
III
Item 10 Directors and Executive Officers of the Registrant.......... 30
Item 11 Executive Compensation...................................... 30
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 30
Item 13 Certain Relationships and Related Transactions.............. 30
PART IV
Item 14 Exhibits, Consolidated Financial Statement Schedules, and
Reports on Form 8-K......................................... 30
Signatures.................................................. 31
Exhibit Index............................................... 32
This amendment to the Annual Report on Form 10-K of ABM Industries
Incorporated for the fiscal year ended October 31, 2001 supplements (1)
portions of Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Results of Operations
- -- Comparison of 2001 to 2000" and (2) notes 2, 10 and 13 to the consolidated
financial statements of the Company set forth under Item 8, "Financial
Statements and Financial Schedule". Specifically, the supplemental information
provided hereby (a) explains how the pre-tax gain resulting from the 2001 sale
of Easterday Janitorial Supply Company was determined and (b) describes
certain effects of the $20 million pre-tax charge taken in 2001 to strengthen
insurance reserves. THIS ADDITIONAL INFORMATION DOES NOT CHANGE ANY LINE ITEM
IN THE CONSOLIDATED FINANCIAL STATEMENTS. THIS FILING DOES NOT RESTATE SUCH
FINANCIAL STATEMENTS.
PART I
ITEM 1. BUSINESS
ABM Industries Incorporated ("ABM") is the largest facility services
contractor listed on the New York Stock Exchange. With annual revenues exceeding
$1.9 billion and more than 60,000 employees, ABM and its subsidiaries (the
"Company") provide air conditioning, elevator, engineering, janitorial,
lighting, parking and security services to thousands of commercial, industrial
and institutional customers in hundreds of cities across North America.
ABM was reincorporated in Delaware on March 19, 1985, as the successor to a
business founded in California in 1909. The Corporate Headquarters of the
Company are located at 160 Pacific Avenue, Suite 222, San Francisco, California
94111, and its telephone number is 415/733-4000.
INDUSTRY INFORMATION
The Company's operations are grouped into eight divisions (comprised of one
or more subsidiaries of the Company), as they existed at October 31, 2001.
Referred to as "ABM Industries Incorporated Family of Services", they are listed
below by their respective division name:
- ABM Engineering Services
- ABM Janitorial Services
- ABM Service Network
- American Commercial Security Services
- Ampco System Parking
- Amtech Elevator Services
- Amtech Lighting Services
- CommAir Mechanical Services
Additional information relating to the Company's industry segments appears
in Note 13 of Notes to Consolidated Financial Statements contained in Item 8,
"Financial Statements and Financial Statement Schedule." The business activities
of the Company's industry segments, as they existed at October 31, 2001, are
more fully described below.
- ABM ENGINEERING SERVICES provides building owners and managers with
on-site engineers to operate, maintain and repair electrical, energy
management, mechanical, and plumbing systems utilizing computerized
maintenance management systems ("CMMS"). This service is primarily for
high-rise office buildings, but customers also include schools, warehouses,
factories, shopping malls and universities. ABM Engineering Services
operates in 21 states through ten regional offices, three of which are in
California and one each in Arizona, Colorado, Florida, Illinois,
Pennsylvania, New York and Texas. In 1999, this Division earned ISO 9002
Certification, the first national engineering services provider of on-site
operating engineers to earn this exclusive designation. ISO is a quality
standard comprised of a rigorous set of guidelines and good business
practices against which companies are rated through a comprehensive
independent audit process that can take several years.
- ABM JANITORIAL SERVICES (also known as "American Building
Maintenance") provides a wide range of basic janitorial services for a
variety of structures and organizations, including office buildings,
industrial plants, banks, department stores, theaters, warehouses,
educational and health institutions and airport terminals. Services
provided include floor cleaning and finishing, wall and window washing,
furniture polishing, rug cleaning, dusting, as well as other building
cleaning services. ABM Janitorial Services maintains 99 offices in 35
states, the District of Columbia and one Canadian province, and operates
under thousands of individually negotiated building maintenance contracts,
the majority of which are obtained by competitive bidding. Generally,
profit margins on maintenance contracts tend to be inversely proportional
to the size of the contract. Although many of this Division's maintenance
contracts are fixed-price agreements, others contain clauses under which
the customer agrees to reimburse the full amount of wages, payroll taxes,
insurance charges and other expenses plus a profit percentage. The majority
of ABM Janitorial Services contracts are for one-year periods, contain
automatic renewal clauses and are subject to termination by either party by
a 30 to 90 day written notice.
- ABM SERVICE NETWORK (also known as "ABM Facility Services") provides
customers with streamlined, centralized control and coordination of
multiple facility service needs. This process is consistent with the
greater competitive demands on corporate organizations to become more
efficient in the business market today. By leveraging the core competencies
of the Company's other divisions, this Division attempts to reduce
overhead, such as redundant
3
personnel, for its customers by providing multiple services under a single
contract, with one contact and one invoice. Its National Service Center
provides centralized dispatching, emergency services, accounting and
related reports to financial institutions, high-tech companies, and other
customers regardless of industry or size. ABM Service Network is
headquartered in San Francisco, where it also maintains its National
Service Center.
- AMERICAN COMMERCIAL SECURITY SERVICES (also known as "ACSS" and "ABM
Security Services") provides security guards, electric monitoring of fire,
life, safety, and access control devices, and security consulting services
to a wide range of businesses in the major metropolitan areas of Phoenix,
Arizona; San Francisco, San Diego and Los Angeles, California; Chicago,
Illinois; New Orleans, Louisiana; Minneapolis, Minnesota; Portland, Oregon;
Houston, Dallas, Fort Worth, Austin and San Antonio, Texas; Seattle,
Washington; and Salt Lake City, Utah. Much like ABM Janitorial Services,
the majority of this Division's contracts are for one-year periods, contain
automatic renewal clauses and are subject to termination by either party by
a 30 to 90 day written notice.
- AMPCO SYSTEM PARKING (also known as "Ampco System Airport Parking"
and "Ampco Express Airport Parking") operates approximately 1,600 parking
lots and garages, which are either leased from or operated through
management contracts for third parties. The lease terms generally range
from 5 to 20 years and usually contain provisions for renewal options.
Leases which expire may continue on a month-to-month basis or may be
replaced by similar leases. Many leases contain provisions for contingent
rentals based on revenues. Ampco System Parking currently operates in 26
states and the following airports: Austin, Texas; Denver, Colorado;
Detroit, Michigan; Honolulu, Hawaii; and San Francisco, California, to name
a few. In conjunction with its on-airport parking services, this Division
also operates off-airport parking facilities in Philadelphia, Pennsylvania;
Houston, Texas; Los Angeles and San Diego, California, and parking shuttle
bus services at thirteen locations.
- AMTECH ELEVATOR SERVICES maintains, modernizes and repairs elevators
and escalators in major metropolitan areas of California; Houston, Texas;
Cincinnati, Ohio; Detroit, Michigan; Upper Marlboro, Maryland; Las Vegas,
Nevada; Pennsauken, New Jersey; Atlanta, Georgia; Philadelphia,
Pennsylvania; Phoenix, Arizona; Denver, Colorado; Chicago, Illinois; and
Washington, D.C. Amtech Elevator Services maintains 18 offices and several
parts warehouses, and operates a fleet of radio-equipped service vehicles.
- AMTECH LIGHTING SERVICES provides relamping, fixture cleaning, and
periodic lighting maintenance service to a variety of commercial, retail,
and industrial customers. Amtech Lighting Services also maintains
electrical outdoor signage and provides electrical service and repairs for
their customer base. This Division maintains 28 offices, eight of which are
located in California, four are in Texas, two in North Carolina; and one
office in each of the following states: Alabama, Arizona, Florida, Georgia,
Illinois, Louisiana, Maryland, Minnesota, Nevada, New Jersey, New York,
Oklahoma, Oregon, and Washington.
- COMMAIR MECHANICAL SERVICES (also known as "CommAir Preferred
Mechanical Services") installs, maintains, and repairs heating, ventilation
and air conditioning equipment, performs chemical water treatment, and
provides energy conservation services for commercial, industrial and
institutional facilities. CommAir Mechanical Services maintains nine
offices, eight of which are located in California, and one in Phoenix,
Arizona.
Effective April 30, 2001, the Company sold its Easterday Janitorial Supply
Division, which in fiscal 2000 had annual revenues of $43.9 million, of which
27% were intercompany sales. Additional information regarding this transaction
appears in Note 10 of Notes to Consolidated Financial Statements contained in
Item 8, "Financial Statements and Financial Statement Schedule."
The effect on revenues and operations of the September 11 terrorist attacks
is described in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TRADEMARKS
The Company believes that it owns or is licensed to use all corporate
names, trade names, trademarks,
4
service marks, copyrights, patents and trade secrets which are material to the
Company's operations.
COMPETITION
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. Nearly all services provided by the Company are under contracts
originally obtained through competitive bidding. The Company's competitors
include a large number of regional and local companies located in major cities
throughout the United States and Canada. While the majority of the Company's
competitors operate in a limited geographic area, the operating divisions of a
few large, diversified facility service companies compete with the Company on a
national basis.
SALES AND MARKETING
The Company's sales and marketing efforts are conducted by its corporate,
division, region, branch and district offices. Sales, marketing, management and
operations personnel in each of these offices participate directly in selling
and servicing customers. The broad geographic scope of these offices enables the
Company to provide a full range of facility services through intercompany sales
referrals, multi-service "bundled" sales and national account sales. The Company
also has designated a nationwide group of "ABM Family of Services" executives to
market all of the Company's facility services capabilities.
The Company has a broad customer base including airports, apartment
complexes, city centers, colleges and universities, financial institutions,
industrial plants, office buildings, retail stores, shopping centers and theme
parks. No customer accounted for more than 5% of its revenues during the fiscal
year ended October 31, 2001.
EMPLOYEES
The Company employs over 60,000 persons, of whom the vast majority are
service employees who perform air conditioning, elevator, engineering,
janitorial, lighting, parking and security services. Approximately 24,900 of
these employees are covered under collective bargaining agreements. There are
about 3,600 employees with executive, managerial, supervisory, administrative,
professional, sales, marketing or clerical responsibilities or other office
assignments.
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, cash flows, or results of operations.
The Company is currently involved in three proceedings relating to
environmental matters: one involving alleged potential soil and groundwater
contamination at a Company facility in Florida; one involving alleged potential
soil contamination at a former Company facility in Arizona; and one involving
alleged potential soil and groundwater contamination at a former dry-cleaning
facility leased by the Company in Nevada. While it is difficult to predict the
ultimate outcome of these matters, based on information currently available,
management believes that none of these matters, individually or in the
aggregate, are reasonably likely to have a material adverse effect on the
Company's financial position, cash flows, or results of operations. As any
liability related to these claims is neither probable nor estimable, no accruals
have been made related to these matters.
5
EXECUTIVE OFFICERS OF ABM
The executive officers of ABM as of October 31, 2001 were as follows:
PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE
NAME AGE DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------
Henrik C. Slipsager 46 President & Chief Executive Officer since November 2000;
Executive Vice President of ABM, and President of the
Janitorial Services Division, from November 1999 through
October 2000; Senior Vice President of ABM from March 1998
through October 1999; Executive Vice President of the
Janitorial Services Division from January 1997 through
October 1999
Martinn H. Mandles 61 Chairman of the Board since December 1997; Chief
Administrative Officer since November 1991; Executive Vice
President from November 1991 through November 1997
Jess E. Benton III 61 Chief Operating Officer since November 2000; Executive Vice
President since November 1999; Senior Vice President from
July 1994 through October 1999
Donna M. Dell 53 Senior Vice President of Human Resources since November
1999; Chief Employment Counsel since April 1997; Vice
President of Human Resources from July 1994 through October
1999
Harry H. Kahn 58 Senior Vice President since November 1999; General Counsel &
Corporate Secretary since November 1991; Vice President from
November 1991 through October 1999
George B. Sundby 50 Senior Vice President & Chief Financial Officer since June
2001; Senior Vice President & Chief Financial Officer of
Transamerica Finance Corporation from September 1999 through
March 2001; Vice President of Financial Planning and
Analysis of Transamerica Corporation from January 1995
through March 2001
Gary R. Wallace 50 Senior Vice President, Director of Business Development &
Chief Marketing Officer of ABM since November 2000; Senior
Vice President of the Janitorial Services Division from
September 1995 through October 2000
Maria de la Pena 42 Vice President & Controller since July 2001; Controller of
Vectiv Corporation from March 2001 through June 2001;
Assistant Controller of Transamerica Finance Corporation
from December 1999 through March 2001; Director of
Accounting of Transamerica Corporation from December 1997
through November 1999; Accounting Manager of Transamerica
Corporation from March 1994 through November 1997
Anthony D. Lackey 38 Vice President since November 1999; Director of Electronic
Services & Chief Technology Officer since July 1996;
Assistant Vice President from July 1996 through October 1999
Terry D. McNeil 54 Vice President since November 1999; Director of Insurance
Services since October 1988; Assistant Vice President from
July 1996 through October 1999
Eleonora C. Walsh 61 Vice President since November 1999; Director of
Administrative Services since November 1991; Assistant Vice
President from July 1996 through October 1999
6
ITEM 2. PROPERTIES
The Company has corporate, division, regional, branch or district offices
in over 250 locations throughout the United States, and Canada. Thirteen of
these facilities are owned by the Company and the remainder are leased. At
October 31, 2001, the real estate owned by the Company had an aggregate net book
value of $3.6 million and was located in: Phoenix, Arizona; Fresno, California;
Jacksonville and Tampa, Florida; Portland, Oregon; Arlington, Houston and San
Antonio, Texas; and Kennewick, Seattle, Spokane and Tacoma, Washington.
Rental payments under long and short-term lease agreements amounted to
$103.3 million for the fiscal year ended October 31, 2001. Of this amount, $69.7
million in rental expense was attributable to public parking lots and garages
that Ampco System Parking leases and operates. The remaining expense was for the
rental or lease of office space, computers, operating equipment and motor
vehicles.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION AND DIVIDENDS
ABM's common stock is listed on the New York Stock Exchange. ABM's credit
agreement places certain limitations on dividend payments based on net income
(see Note 4 of Notes to Consolidated Financial Statements contained in Item 8).
The following table sets forth the high and low prices of ABM's common stock and
quarterly cash dividends on common shares for the periods indicated:
FISCAL QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH YEAR
- ---------------------------------------------------------------------------------------------------------
2001
Price range of common stock:
High $32.13 $33.00 $38.20 $37.65 $38.20
Low $27.56 $28.46 $30.72 $24.96 $24.96
Dividends per share $ 0.165 $ 0.165 $ 0.165 $ 0.165 $ 0.66
2000
Price range of common stock:
High $23.88 $28.00 $26.19 $28.00 $28.00
Low $19.25 $20.25 $21.75 $23.94 $19.25
Dividends per share $ 0.155 $ 0.155 $ 0.155 $ 0.155 $ 0.62
- ---------------------------------------------------------------------------------------------------------
At November 30, 2001, there were approximately 4,735 registered holders of
ABM's common stock, in addition to stockholders in street name.
7
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below is derived from
the Company's consolidated financial statements for each of the years in the
five-year period ended October 31, 2001.
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts and
ratios) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
OPERATIONS
Revenues and other income $1,950,038 $1,807,557 $1,629,716 $1,501,827 $1,252,472
- --------------------------------------------------------------------------------------------------------------
Expenses
Operating expenses and cost of goods sold 1,722,334 1,573,998 1,413,541 1,298,423 1,076,078
Selling, general and administrative 172,157 157,546 146,984 142,431 126,755
Interest 2,602 3,320 1,959 3,465 2,675
- --------------------------------------------------------------------------------------------------------------
Total expenses 1,897,093 1,734,864 1,562,484 1,444,319 1,205,508
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 52,945 72,693 67,232 57,508 46,964
Income taxes 20,119 28,350 27,565 23,578 19,725
- --------------------------------------------------------------------------------------------------------------
Net income $ 32,826 $ 44,343 $ 39,667 $ 33,930 $ 27,239
==============================================================================================================
Net income per common share
Basic $ 1.36 $ 1.94 $ 1.77 $ 1.58 $ 1.33
Diluted $ 1.30 $ 1.85 $ 1.65 $ 1.44 $ 1.22
==============================================================================================================
Common and common equivalent shares
Basic 23,799 22,551 22,067 21,110 20,143
Diluted 25,010 23,709 23,748 23,161 21,872
==============================================================================================================
FINANCIAL STATISTICS
Dividends paid per common share $ 0.66 $ 0.62 $ 0.56 $ 0.48 $ 0.40
Stockholders' equity $ 361,177 $ 316,309 $ 276,951 $ 236,838 $ 197,278
Common shares outstanding at October 31 24,389 22,999 22,407 21,601 20,464
Stockholders' equity per common share $ 14.81 $ 13.75 $ 12.36 $ 10.96 $ 9.64
Working capital $ 229,542 $ 224,199 $ 184,279 $ 165,788 $ 137,223
Current ratio 1.97 2.05 2.01 2.05 1.89
Long-term debt (less current portion) $ 942 $ 36,811 $ 28,903 $ 33,720 $ 38,402
Redeemable cumulative preferred stock $ -- $ 6,400 $ 6,400 $ 6,400 $ 6,400
Total assets $ 683,100 $ 641,985 $ 563,384 $ 501,363 $ 464,251
Property, plant and equipment -- net $ 42,936 $ 40,734 $ 35,181 $ 27,307 $ 26,584
Capital expenditures $ 16,922 $ 18,717 $ 19,451 $ 11,715 $ 13,272
Depreciation and amortization $ 26,328 $ 23,524 $ 20,698 $ 19,593 $ 16,118
Trade accounts receivable -- net $ 367,201 $ 353,017 $ 290,920 $ 255,758 $ 226,093
==============================================================================================================
Stockholders' equity per common share is calculated by dividing
stockholders' equity at the end of the fiscal year by the number of shares of
common stock outstanding at that date. The Company believes that stockholders'
equity per common share is a standard measure commonly reported and widely used
by analysts, investors and other interested persons. However, stockholders'
equity per common share as presented in this report may not be comparable to
similarly titled measures reported by other companies.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto contained
in Item 8, "Financial Statements and Financial Statement Schedule." All
information in the discussion and references to the years are based on the
Company's fiscal year that ends on October 31.
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 that provides a $150 million line of
credit expiring July 1, 2002. At the Company's option, the credit facility
provides interest at the prime rate or IBOR + .35%. As of October 31, 2001 the
total amount outstanding was approximately $52 million, which was comprised of
loans in the amount of $10 million and standby letters of credit of $42 million.
This agreement requires the Company to meet certain financial ratios and places
some limitations on outside borrowing. In addition, the Company has a loan
agreement with a major U.S. bank with a balance of $1.8 million at October 31,
2001. This loan bears interest at a fixed rate of 6.78% with annual payments of
principal, in varying amounts, and interest due each February 15 through 2003.
On September 4, 2001, the Company redeemed 6,400 shares of Series B 8%
Senior Redeemable Cumulative Preferred Stock having a par value of $0.01 per
share and redemption price of $1,000 per share.
Operating activities generated cash flows in 2001, 2000 and 1999 of $65.8
million, $18.9 million and $35.3 million, respectively. While each year's cash
flows were impacted by higher volume in revenues, the 2000 decrease reflected
slower payments by some large customers. Cash paid for acquisitions during the
fiscal years ended October 31, 2001, 2000 and 1999, including payments pursuant
to contractual arrangements involved in prior acquisitions, were approximately
$23.4 million, $14.2 million and $11.0 million, respectively. Capital
expenditures during fiscal years 2001, 2000 and 1999 were $16.9 million, $18.7
million and $19.5 million, respectively. Cash dividends paid to stockholders of
common and redeemable preferred stock and amounts used to repurchase common
stock were approximately $16.2 million in 2001, $22.9 million in 2000, and $18.5
million in 1999. Cash from financing activities changed in 2001 compared to 2000
primarily due to repayments of nearly $26 million in debt and a reduction in the
bank overdraft (outstanding checks) of nearly $16 million.
At October 31, 2001, working capital was $229.5 million as compared to
$224.2 million at October 31, 2000. The largest component of working capital
consists of trade accounts receivable that totaled $367 million at October 31,
2001 compared to $353 million at October 31, 2000. These amounts were net of an
allowance for doubtful accounts of $9.4 million and $8.8 million at October 31,
2001 and 2000, respectively. As of October 31, 2001, accounts receivable that
were over 90 days past due had increased $6.6 million to $55.9 million (15% of
the total outstanding) from $49.3 million (14% of the total outstanding) at
October 31, 2000.
The Company self-insures, generally up to $500,000 per occurrence, certain
insurable risks such as general liability, property damage and workers'
compensation. Commercial umbrella policies are obtained to provide for $125
million of coverage above the self-insured retention limits. It is the Company's
policy to annually retain an outside actuary to review the adequacy of its
self-insurance claim reserves.
The energy crisis in the State of California has not had a material impact
on the Company.
IMPACT OF SEPTEMBER 11, 2001, TERRORIST ATTACKS
As previously reported by the Company, the World Trade Center in New York
was the Company's largest single job site with annual revenues of approximately
$65 million (3% of ABM's consolidated revenues). Nearly 800 operating engineers,
janitorial personnel and lighting technicians from three divisions of the
Company worked various shifts throughout the day and night. There has been no
further information regarding the fate of seventeen employees still missing and
now presumed dead. The Company estimates that annual gross profits on this
business approached $10 million. Additionally, the Company provided
approximately $60 million in
9
annual services to neighboring job sites which had various major disruptions.
The Company has commercial insurance policies covering business
interruption, property damage and other losses related to this tragic incident
and has been working with its carrier, Zurich Insurance, in providing
preliminary claim information regarding the property damage and lost business
income. Zurich has neither accepted nor denied coverage for all or any part of
the claim as of the date of this filing. However, Zurich filed a Declaratory
Judgment Action in the Southern District of New York claiming the loss of the
business profit falls under a Contingent Business Interruption Sub-limit within
the policy of $10 million. Based on review of the policy and consultation with
coverage counsel and other claim experts, the Company believes that its business
interruption claim does not fall under the $10 million sub-limit on contingent
business interruption. Zurich's filing does not impact any other aspects of the
claim.
Under the guidance published by the Emerging Issues Task Force of the
Financial Accounting Standards Board "Accounting for the Impact of the Terrorist
Attacks of September 11, 2001", the Company has not recognized the amounts it
expects to recover from its business interruption insurance as income. Any gain
from insurance proceeds is considered a contingent gain and, under Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies," can only
be recognized as income in the period when any and all contingencies relating to
the insurance claim have been resolved. The Company has recognized income from
insurance policies to the extent of costs incurred for property damage and
direct expenditures related to the attacks.
In response to these announced developments, on September 16, 2001, the
Company's Board of Directors authorized the repurchase of up to one million
shares of its outstanding stock at any time through December 31, 2001. On
December 17, 2001, the Board of Directors extended this authorization to
repurchase until December 31, 2002. As of the filing date of this report, there
has been no repurchase by the Company of its outstanding shares.
EFFECT OF INFLATION
The low rates of inflation experienced in recent years have had no material
impact on the financial statements of the Company. The Company attempts to
recover increased costs by increasing sales prices to the extent permitted by
contracts and competition.
ACQUISITIONS
The operating results of businesses acquired have been included in the
accompanying consolidated financial statements from their respective dates of
acquisition and are more fully discussed in Note 10 to the Consolidated
Financial Statements. Acquisitions made during the three fiscal years ended
October 31, 2001, contributed approximately $119.2 million to fiscal 2001
revenues.
RESULTS OF OPERATIONS
COMPARISON OF 2001 TO 2000
The Company reported record revenues for 2001. Revenues and other income
(hereinafter called "revenues") were over $1.9 billion in 2001, up $142 million
or 8%, from $1.8 billion reported in 2000. The increase in revenues in 2001 over
2000 was attributable to new business and acquisitions made during the prior
years. Revenues generated from acquisitions during the prior year contributed
$9.4 million of the 2001 increase while the current year acquisitions added
$65.7 million. Although the Company achieved record annual revenues, net income
fell by 26% to $32.8 million ($1.30 per diluted share) in 2001 from $44.3
million ($1.85 per diluted share) in 2000 primarily due to a $20 million pre-tax
charge to strengthen the Company's self-insurance reserves reflecting the
results of the annual independent actuarial review completed in December. The
actuarial report this year revealed that while the frequency of claims is
trending favorably as expected, the severity of claims in 2000 and 2001 trended
higher than anticipated in the report received last year. The impact of these
trends on known claims and claims incurred but not reported called for an
increase of approximately $8.5 million for fiscal 2001 claims while
approximately $10.5 million reflects the unfavorable trend on pre-2001 claims.
Additionally, 2001 required a loss of $1.0 million in claims related to the
World Trade Center terrorist attack. As a result of the Company's recent claims
experience, the Company has increased its self-insurance rates that will be
charged to the divisions in 2002 by 21% over 2001. The estimated future charge
is designed to capture the recent experience and trends. Actual results could be
different. Excluding the insurance charge of $0.50 per diluted share, net income
per diluted share declined
10
3% to $1.80 for 2001 from $1.85 for 2000 due to the increase in diluted average
shares outstanding resulting from option exercises.
As a percentage of revenues, operating expenses and cost of goods sold was
88.3% for 2001, compared to 87.1% in 2000. Consequently, as a percentage of
revenues, the Company's gross profit (revenues minus operating expenses and cost
of goods sold) of 11.7% in 2001 was lower than the gross profit of 12.9% in
2000. The decrease in gross profit as a percentage of revenues was mostly due to
the $20 million insurance adjustment, higher labor and related costs and
continued competitive pressure to maintain or lower prices.
Selling, general and administrative expenses were $172 million in 2001, an
increase of 9% from $158 million in 2000. As a percentage of revenues, selling,
general and administrative expenses increased from 8.7% for 2000 to 8.8% for
2001, primarily due to an increase in bad debt expense of $3.2 million over the
prior year and to salaries and expenses associated with acquisitions including
the amortization of goodwill.
Interest expense was $2.6 million in 2001 compared to $3.3 million for
2000, a decrease of $718,000. This decrease was primarily due to lower weighted
average borrowings and interest rates in 2001.
The effective income tax rate for 2001 was 38%, compared to 39% in 2000.
The lower tax rate was due for the most part to a significant increase in the
federal work opportunity tax credits in relation to pre-tax income.
The Company is currently organized into eight separate operating divisions
as defined under Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information". However,
only the ABM Janitorial, Ampco System Parking, ABM Engineering, Amtech Lighting,
and Amtech Elevator Divisions are reportable using the criteria of SFAS No. 131.
Results of Easterday Janitorial Supply Division are included in Other Segments
prior to its sale on April 29, 2001. Additional information relating to the
Company's industry segments appears in Note 13 of Notes to Consolidated
Financial Statements contained in Item 8, "Financial Statements and Financial
Statement Schedule." The results of operations, which include self-insurance
charges at the fiscal year 2001 rate, but exclude any allocation of the $20
million insurance charge, from the five reportable operating divisions for 2001
as compared to 2000 are more fully described below:
ABM Janitorial Services reported revenues for 2001 of $1.2 billion, an
increase of $107 million, or 10%, from 2000. This is the Company's largest
Division and accounted for nearly 60% of the Company's consolidated revenues in
2001. ABM Janitorial Services revenues increased as a result of acquisitions and
new business, particularly in the Mid-Atlantic and Northeast regions. Revenues
generated from acquisitions during the prior year contributed $4.8 million of
the 2001 increase while the current year acquisitions added $51.1 million. ABM
Janitorial Services' operating profits increased 13% in 2001 to $59.9 million
when compared to 2000. The higher percentage increase in profits compared to
revenues can be primarily attributed to the Company's fixed price contracts on
which hourly workers were paid one less workday in 2001 compared to 2000. The
change in the number of workdays affects the profit margin on this type of
contract.
Ampco System Parking revenues decreased by 4% in 2001 from 2000 to $166
million, and its operating profits decreased by 53% to $4.1 million during 2001
compared to 2000. The decrease in revenues was mostly due to the loss of three
airport contracts, the conversion of lease contracts to management fee
contracts, and the effect of the terrorist attacks on September 11, 2001 on
sales at airport and hotel facilities. The decrease in operating profits
resulted from litigation expense, increased insurance costs and the decline in
sales.
ABM Engineering Services increased revenues by 9% in 2001 from 2000 to $171
million, while its operating profits increased 11% to $9 million for 2001
compared to 2000. The revenue increase was due primarily to additional business.
The increase in operating profits is due to the increase in sales and slightly
higher profit margins as a result of lower administrative costs.
Amtech Lighting Services reported a 22% revenue increase to $144 million in
2001 from 2000 due to acquired business from the purchase of SLI Lighting
Solutions in March 2001, and sales increases in the Northwest region. The
smaller increase in operating profits of 9% to $11 million during 2001 compared
to the prior year is attributable to lower margins in the Southeast on business
acquired in 2001.
11
Revenues for Amtech Elevator Services were $121 million, up by 6% for 2001
over 2000, largely due to an increased customer base. The Amtech Elevator
Division reported $4.8 million in operating profits in 2001, a 29% decrease
compared to 2000. This decrease in operating profits can be attributed primarily
to lower margins on maintenance contracts and losses on several modernization
contracts, as well as higher insurance, bad debt, communications and computer
related expenses.
The significant increase in unallocated Corporate expenses for 2001
includes the $20 million insurance adjustment mentioned previously and
centralization of marketing and sales expenses compared to the prior year.
While virtually all insurance claims arise from the operating divisions, this
adjustment is included in unallocated corporate expenses. Had the Company
allocated the insurance adjustment among the divisions, the reported pre-tax
operating profits of the divisions, as a whole, would have been reduced by $20
million, with an equal and offsetting change to unallocated Corporate expenses
and therefore no change to consolidated pre-tax earnings.
Other Segments represent the results of the remaining divisions including
the operating results of Easterday Janitorial Supply Company prior to its sale
effective April 30, 2001, which includes a pre-tax gain on sale of $718,000.
The sales price of $12 million represents a $3.7 million premium over the book
value of the net assets sold. The pre-tax gain is net of Easterday-specific
insurance expenses of $1.3 million, reserves for sale contingencies (including
the guarantee of sold receivables and expenses of winding-up Easterday
operations) of $1 million, write-offs of intangible assets of $294,000, and
second quarter operating losses of $377,000. The loss of Easterday's income in
the third and fourth quarter of 2001 was more than offset by the increase in
the operating profits of the Company's American Commercial Security Services
and CommAir Mechanical Services Divisions.
COMPARISON OF 2000 TO 1999
Revenues were $1.8 billion in 2000, up $178 million or 11%, from $1.6
billion reported in 1999. The increase in revenues in 2000 over 1999 was
attributable to new business and acquisitions made during the prior years.
Acquisitions during 2000 accounted for approximately $17.4 million, or 10%, of
the total revenue increase of $178 million for 1999. Net income for 2000 was
$44.3 million, an increase of 12%, compared to net income of $39.7 million in
1999. Diluted net income per common share also rose 12% to $1.85 for 2000
compared to $1.65 for the same period in 1999. On September 22, 1999 the Company
announced a stock repurchase program for up to one million outstanding shares.
As of October 31, 2000, 603,000 shares had been reacquired.
As a percentage of revenues, operating expenses and cost of goods sold were
87.1% for 2000, compared to 86.7% in 1999. Consequently, the Company's gross
profit as a percentage of revenues of 12.9% in 2000 was slightly lower than the
gross profit of 13.3% in 1999. The gross profit percentage declined mostly due
to higher labor and related costs, particularly workers' compensation insurance,
and continued competitive pressure to maintain or lower prices. In addition, the
Company's hourly workers were paid two additional workdays in 2000 compared to
1999. On fixed price monthly contacts, such increases are not recovered.
Selling, general and administrative expenses increased 7.2% for 2000
compared to 1999. However, as a percentage of revenues, selling, general and
administrative expenses decreased from 9.0% for 1999, to 8.7% for 2000,
primarily due to certain costs that do not increase at the same rate as sales.
The dollar increase in selling, general and administrative expenses is primarily
due to salaries and expenses associated with acquisitions including the
amortization of goodwill, and costs associated with the implementation of a new
accounting system. The cost increases were somewhat offset by decreased profit
sharing expense.
Interest expense was $3.3 million in 2000 compared to $2.0 million for
1999, a decrease of $1.3 million. This decrease was primarily due to lower
weighted average borrowings and interest rates in 2000.
The income before income taxes (pre-tax income) for 2000 was $72.7 million
compared to $67.2 million, an increase of 8% over 1999. Pre-tax income did not
increase at the same rate as revenues due to the higher operating expenses.
The effective income tax rate for 2000 was 39%, compared to 41% in 1999.
The lower tax rate was due for the most part to a significant increase in the
federal work opportunity tax credits.
12
The results of operations from the Company's five reportable operating
divisions for 2000 as compared to 1999 are more fully described below:
Revenues of ABM Janitorial Services increased by 13% during 2000 to $1.1
billion over 1999, as a result of new business, particularly in the
Mid-Atlantic, Northwest and Southwest regions. Revenues generated from
acquisitions during 1999 contributed about $11.8 million of the 2000 increase
while the 2000 acquisitions added $10.8 million. Operating profits increased 8%
in 2000 to $53.1 million when compared to 1999. The lower percentage increase in
profits can be attributed to low profit margins and high startup costs on some
large contracts in this Division's Southeast region as well as the expense of
extra workdays in fiscal 2000, as discussed previously.
Ampco System Parking's revenues increased by 6% to $172.4 million, and its
operating profits also increased by 4% to $8.7 million during 2000 compared to
1999. The increase in revenues and operating profits was mostly due to growth in
California and Texas, along with small acquisitions in Florida, Texas and
Washington.
ABM Engineering Services increased revenues by 2% to $156.3 million, while
its operating profits decreased by 2% to $8.2 million for 2000 compared to 1999.
The large revenue increase was due primarily to additional business obtained in
New York City and Southern California. The decrease in operating profits was due
to lower profit margins and increased administrative costs.
Amtech Lighting Services reported a 24% revenue increase to $118.4 million
in 2000 from 1999 due to increased business in all its markets, except Northern
California, and an acquisition in the Southeast. Operating profits increased by
35% to $10.1 million during 2000 compared to the prior year. Profit margins
improved due to a reduction in labor and material costs.
Revenues for Amtech Elevator Services were $114.4 million, up by 18% for
2000 over 1999, largely due to an increased customer base. The Amtech Elevator
Division reported a 3% increase in operating profits in 2000 to $6.8 million
compared to 1999. The smaller increase in operating profits can be attributed
primarily to increased labor, material and insurance costs as well as
computer-related expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (as amended by SFAS Nos. 137 and
138). SFAS No. 133 relates to accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. It requires that an entity recognizes all derivatives as either
assets or liabilities and measures those instruments at fair value. The Company
adopted SFAS No. 133 on November 1, 2000; however, the Company is not a party to
any contracts that would meet the definition of a derivative under SFAS No. 133.
Upon adoption of this standard there was no effect on the Company's financial
statements.
In July 2001, FASB issued SFAS No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting. Historically, all acquisitions by the Company
have been accounted for as purchases, thus there was no effect on the Company's
financial statements upon adoption of this standard. SFAS No. 142 becomes
effective in fiscal years beginning after December 15, 2001, with early adoption
permitted. The Company plans to early adopt the provisions of SFAS No. 142
beginning in the first quarter of fiscal 2002. In accordance with this standard,
goodwill will no longer be amortized but will be subject to annual assessment
for impairment by applying a fair-value-based test. All other intangible assets
will continue to be amortized over their estimated useful lives. Goodwill
amortization expense was $12.3 million for the twelve months ended October 31,
2001. The Company's preliminary determination has indicated no impairment of its
goodwill carrying value.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses the financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated retirement costs. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. SFAS
No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 is not antici-
13
pated to have a material effect on the Company's results of operations or
financial condition.
In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of", and elements of APB 30, "Reporting the Results of
Operations -- Reporting the Effects on Disposal of a Segment of a Business and
Extraordinary, Unusual or Infrequently Occurring Events and Transactions". SFAS
No. 144 establishes a single-accounting model for long-lived assets to be
disposed of while maintaining many of the provisions relating to impairment
testing and valuation. SFAS No. 144 is effective for fiscal years beginning
after December 31, 2001. The adoption of SFAS No. 144 is not anticipated to have
a material effect on the Company's results of operations or financial condition.
SAFE HARBOR STATEMENT
Cautionary Safe Harbor Disclosure for Forward Looking Statements under the
Private Securities Litigation Reform Act of 1995: Because of the factors set
forth below, as well as other variables affecting the Company's operating
results, past financial performance should not be considered a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. The statements contained
herein which are not historical facts are forward-looking statements that are
subject to meaningful risks and uncertainties, including but not limited to: (1)
significant decreases in commercial real estate occupancy, resulting in reduced
demand and prices for building maintenance and other facility services in the
Company's major markets, (2) loss or bankruptcy of one or more of the Company's
major customers, which could adversely affect the Company's ability to collect
its accounts receivable or recover its deferred costs, (3) major collective
bargaining issues that may cause loss of revenues or cost increases that
non-union companies can use to their advantage in gaining market share, (4)
significant shortfalls in adding additional customers in existing and new
territories and markets, (5) a protracted slowdown in the Company's acquisition
activities, (6) legislation or other governmental action that severely impacts
one or more of the Company's lines of business, such as price controls that
could restrict price increases, or the unrecovered cost of any universal
employer-paid health insurance, as well as government investigations that
adversely affect the Company, (7) reduction or revocation of the Company's line
of credit, which would increase interest expense or the cost of capital, (8)
cancellation or nonrenewal of the Company's primary insurance policies, as many
customers contract out services based on the contractor's ability to provide
adequate insurance coverage and limits, (9) catastrophic uninsured or
underinsured claims against the Company, the inability of the Company's
insurance carriers to pay otherwise insured claims, or inadequacy in the
Company's reserve for self-insured claims, (10) inability to employ entry level
personnel due to labor shortages, (11) resignation, termination, death or
disability of one or more of the Company's key executives, which could adversely
affect customer retention and day-to-day management of the Company, and (12)
other material factors that are disclosed from time to time in the Company's
public filings with the United States Securities and Exchange Commission, such
as reports on Forms 8-K, 10-K and 10-Q.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, as such, are not subject to
material foreign currency exchange rate risk. Although the Company has
outstanding debt and related interest expense, market risk in interest rate
exposure in the United States is currently not material.
14
ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
ABM Industries Incorporated:
We have audited the accompanying consolidated balance sheets of ABM
Industries Incorporated and subsidiaries as of October 31, 2001 and 2000, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended October 31, 2001. In connection with our audits of the consolidated
financial statements, we also have audited the related financial statement
schedule II. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ABM
Industries Incorporated and subsidiaries as of October 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended October 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule II, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
- ------------------------------------------------------
KPMG LLP
San Francisco, California
December 17, 2001
15
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------
OCTOBER 31 2001 2000
(in thousands, except share amounts)
- ----------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 3,052 $ 2,000
Trade accounts receivable (less allowances of $9,420 and
$8,825) 367,201 353,017
Inventories 25,974 25,513
Deferred income taxes 26,806 17,531
Prepaid expenses and other current assets 42,508 38,758
- ----------------------------------------------------------------------------------
Total current assets 465,541 436,819
Investments and long-term receivables 13,871 13,920
Property, plant and equipment (less accumulated depreciation
of $65,951 and $65,753) 42,936 40,734
Goodwill (less accumulated amortization of $73,264 and
$61,693) 113,199 109,407
Deferred income taxes 35,400 32,537
Other assets 12,153 8,568
- ----------------------------------------------------------------------------------
$683,100 $641,985
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
LIABILITIES
Current portion of long-term debt $ 10,877 $ 865
Bank overdraft -- 15,952
Trade accounts payable 50,671 45,312
Income taxes payable 6,816 8,083
Accrued liabilities:
Compensation 62,854 54,901
Taxes -- other than income 20,409 18,195
Insurance claims 48,193 43,361
Other 36,179 25,951
- ----------------------------------------------------------------------------------
Total current liabilities 235,999 212,620
Long-term debt (less current portion) 942 36,811
Retirement plans 21,483 22,386
Insurance claims 63,499 47,459
- ----------------------------------------------------------------------------------
Total liabilities 321,923 319,276
SERIES B 8% SENIOR REDEEMABLE CUMULATIVE PREFERRED STOCK,
6,400 shares authorized, issued and outstanding, stated at
redemption value, $1,000 per share at October 31, 2000 -- 6,400
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
24,389,000 and 22,999,000 shares issued and outstanding at
October 31, 2001 and 2000, respectively 244 230
Additional paid-in capital 131,242 102,902
Accumulated other comprehensive income (763) (653)
Retained earnings 230,454 213,830
- ----------------------------------------------------------------------------------
Total stockholders' equity 361,177 316,309
- ----------------------------------------------------------------------------------
$683,100 $641,985
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
16
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 2001 2000 1999
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------
REVENUES AND OTHER INCOME $1,950,038 $1,807,557 $1,629,716
- --------------------------------------------------------------------------------------------------
EXPENSES
Operating expenses and cost of goods sold 1,722,334 1,573,998 1,413,541
Selling, general and administrative 172,157 157,546 146,984
Interest 2,602 3,320 1,959
- --------------------------------------------------------------------------------------------------
1,897,093 1,734,864 1,562,484
- --------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 52,945 72,693 67,232
Income taxes 20,119 28,350 27,565
- --------------------------------------------------------------------------------------------------
NET INCOME $ 32,826 $ 44,343 $ 39,667
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE
Basic $ 1.36 $ 1.94 $ 1.77
Diluted $ 1.30 $ 1.85 $ 1.65
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
COMMON AND COMMON EQUIVALENT SHARES
Basic 23,799 22,551 22,067
Diluted 25,010 23,709 23,748
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999 --------------- PAID-IN COMPREHENSIVE RETAINED
(in thousands) SHARES AMOUNT CAPITAL INCOME EARNINGS TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1998 21,601 $216 $ 79,904 $(696) $157,414 $236,838
Comprehensive income:
Net income 39,667 39,667
Other comprehensive income:
Foreign currency translation 61 61
--------
Comprehensive income 39,728
Dividends:
Common stock (12,543) (12,543)
Preferred stock (512) (512)
Tax benefit from exercise of stock options 387 387
Stock purchases (220) (2) (5,446) (5,448)
Stock issued under employees' stock purchase and option
plans and for acquisition 1,026 10 18,491 18,501
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1999 22,407 224 93,336 (635) 184,026 276,951
Comprehensive income:
Net income 44,343 44,343
Other comprehensive income:
Foreign currency translation (18) (18)
--------
Comprehensive income 44,325
Dividends:
Common stock (14,027) (14,027)
Preferred stock (512) (512)
Tax benefit from exercise of stock options 480 480
Stock purchases (383) (4) (8,386) (8,390)
Stock issued under employees' stock purchase and option
plans and for acquisition 975 10 17,472 17,482
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 2000 22,999 230 102,902 (653) 213,830 316,309
Comprehensive income:
Net income 32,826 32,826
Other comprehensive income:
Foreign currency translation (110) (110)
--------
Comprehensive income 32,716
Dividends:
Common stock (15,770) (15,770)
Preferred stock (432) (432)
Tax benefit from exercise of stock options 3,651 3,651
Stock issued under employees' stock purchase and option
plans and for acquisition 1,390 14 24,689 24,703
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 2001 24,389 $244 $131,242 $(763) $230,454 $361,177
================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
17
ABM Industries Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31 2001 2000 1999
(in thousands)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 1,918,558 $ 1,739,297 $ 1,589,775
Other operating cash receipts 5,523 2,347 1,491
Interest received 859 580 870
Cash paid to suppliers and employees (1,822,629) (1,686,988) (1,522,495)
Interest paid (2,991) (3,209) (2,025)
Income taxes paid (33,524) (33,102) (32,311)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 65,796 18,925 35,305
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (16,922) (18,717) (19,451)
Proceeds from sale of assets 1,253 1,164 922
Decrease (increase) in investments and long-term receivables 49 370 (1,885)
Purchase of businesses (23,401) (14,191) (10,980)
Proceeds from sale of business 12,000 -- --
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (27,021) (31,374) (31,394)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, including tax benefit 26,688 16,381 17,178
Common stock purchases -- (8,390) (5,448)
Preferred stock redemption (6,400) -- --
Dividends paid (16,202) (14,539) (13,055)
(Decrease) increase in bank overdraft (15,952) 10,985 2,492
Long-term borrowings 108,000 126,000 57,064
Repayments of long-term borrowings (133,857) (118,127) (61,847)
- -----------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (37,723) 12,310 (3,616)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,052 (139) 295
Cash and cash equivalents beginning of year 2,000 2,139 1,844
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS END OF YEAR $ 3,052 $ 2,000 $ 2,139
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 32,826 $ 44,343 $ 39,667
ADJUSTMENTS:
Depreciation 13,710 12,265 10,815
Amortization 12,618 11,259 9,883
Provision for bad debts 6,134 2,971 2,257
Gain on sale of assets (41) (265) (160)
Gain on sale of business (718) -- --
Increase in deferred income taxes (12,138) (5,517) (6,537)
Increase in trade accounts receivable (24,340) (65,555) (39,304)
Increase in inventories (3,223) (2,217) (331)
Increase in prepaid expenses and other current assets (3,045) (1,200) (1,950)
(Increase) decrease in other assets 40 2,475 (3,295)
(Decrease) increase in income taxes payable (1,267) 765 1,791
(Decrease) increase in retirement plans accrual (903) 3,092 3,320
Increase in insurance claims liability 18,872 7,155 4,500
Increase in trade accounts payable and other accrued
liabilities 27,271 9,354 14,649
- -----------------------------------------------------------------------------------------------------
Total adjustments to net income 32,970 (25,418) (4,362)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 65,796 $ 18,925 $ 35,305
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Non-cash investing activities:
Common stock issued for net assets of business acquired $ 1,666 $ 1,581 $ 1,710
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
18
ABM Industries Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of ABM Industries Incorporated and its subsidiaries ("the
Company"). All material intercompany transactions and balances have been
eliminated. Certain reclassifications of prior year amounts have been made to
conform with the current year presentation.
USE OF ESTIMATES: The preparation of financial statements in conformity
with United States generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to financial statements.
Changes in such estimates may affect amounts reported in future periods.
TRADE ACCOUNTS RECEIVABLE: The Company's accounts receivable arise from
services provided to its customers and are generally due and payable on terms
varying from the receipt of invoice to net thirty days. The Company does not
believe that it has any material exposure due to either industry or regional
concentrations of credit risk.
INVENTORIES: Inventories are valued at amounts approximating the lower of
cost (first-in, first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost less accumulated depreciation and amortization. At the time property, plant
and equipment is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income. Maintenance and repairs are charged against income.
Depreciation and amortization are calculated principally on the
straight-line method. Lives used in computing depreciation for transportation
equipment average 3 to 5 years and 2 to 20 years for machinery and other
equipment. Buildings are depreciated over periods of 20 to 40 years. Leasehold
improvements are amortized over the shorter of the terms of the respective
leases, or the assets' useful lives.
The Company is implementing an enterprise-wide information system. External
direct costs of materials and services and payroll-related costs of employees
working solely on the development of the system are capitalized. Capitalized
costs of the project are being amortized over a period of seven years beginning
on May 1, 2000. Training costs are expensed as incurred.
GOODWILL: Goodwill, which represents the excess of cost over fair value of
net tangible assets of businesses acquired, is amortized on a straight-line
basis over periods not exceeding 40 years. It is the Company's policy to carry
goodwill applicable to acquisitions prior to 1971 of $1,433,000 at cost until
such time as there may be evidence of diminution in value.
INCOME TAXES: Income tax expense is based on reported results of operations
before income taxes. In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", 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 enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
REVENUE RECOGNITION: The Company earns revenue primarily under service
contracts that are either fixed price or are time and materials based. In both
contract types, revenue is recognized as the services are performed. Under the
fixed price contacts, there are no up-front fee arrangements or acceptance
requirements that would require deferral of revenue recognition under Staff
Accounting Bulletin No. 101.
NET INCOME PER COMMON SHARE: The Company has reported its earnings in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share". Basic net income per common share, after the reduction for preferred
stock dividends, is based on the weighted average number of shares outstanding
during the period. Diluted net income per common share, after the reduction for
preferred stock dividends, is based on the weighted average number of shares
outstanding during the
19
period, including common stock equivalents. The calculation of these amounts is
as follows:
- -----------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------
Net income $32,826,000 $44,343,000 $39,667,000
Preferred stock
dividends (432,000) (512,000) (512,000)
- -----------------------------------------------------------------
$32,394,000 $43,831,000 $39,155,000
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Common shares
outstanding -- basic 23,799,000 22,551,000 22,067,000
Effect of dilutive
securities:
Stock options 1,150,000 1,035,000 1,544,000
Other 61,000 123,000 137,000
- -----------------------------------------------------------------
Common shares
outstanding -- diluted 25,010,000 23,709,000 23,748,000
- -----------------------------------------------------------------
- -----------------------------------------------------------------
For the purposes of computing diluted net income per common share, weighted
average common share equivalents do not include stock options with an exercise
price that exceeds the average fair market value of the Company's common stock
for the period. On October 31, 2001, 2000 and 1999, options to purchase common
shares of 874,000, 1,078,000 and 1,268,000 at a weighted average exercise price
of $32.62, $31.71 and $31.09, respectively, were excluded from the computation.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
instruments with original maturities of three months or less to be cash and cash
equivalents.
STOCK-BASED COMPENSATION: The Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees".
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
related gains and losses affecting shareholders' equity that, under generally
accepted accounting principles, are excluded from net income. For the Company,
such comprehensive income items consist of unrealized foreign currency
translation gains and losses.
2. INSURANCE
Certain insurable risks such as general liability, property damage and
workers' compensation are self-insured by the Company. However, the Company has
umbrella insurance coverage for certain risk exposures subject to specified
limits. Accruals for claims under the Company's self-insurance program are
recorded on a claim-incurred basis. The accrual includes any general liability,
property damage or workers' compensation claim that as of the applicable
accounting period end was incurred. The Company's method accounts for known
claims and incurred but not reported claims. The claim-incurred method includes
cost factors for inflation and the cost of litigation and administration. The
Company uses independent actuaries to annually evaluate and record the Company's
estimated claim costs and liabilities and accrues an amount that is within an
actuarial range of exposure. The estimated liability for claims incurred but
unpaid at October 31, 2001 and 2000 was $111,692,000 and $90,820,000,
respectively. In the fourth quarter of fiscal year 2001, the Company recorded a
$20,000,000 pre-tax expense to strengthen reserves as a result of the actuarial
evaluation. The actuarial report this year revealed that while the frequency of
claims is trending favorably as expected, the severity of claims in 2000 and
2001 trended higher than anticipated in the report received last year. The
impact of these trends on known claims and claims incurred but not reported
called for an increase of approximately $8,500,000 for fiscal 2001 claims
while approximately $10,500,000 reflects the current year's unfavorable trend
on pre-2001 claims. Additionally, 2001 required a provision of $1,000,000 for
claims related to the September 11, 2001 World Trade Center attack. In
connection with certain self-insurance agreements, the Company has standby
letters of credit at October 31, 2001 supporting the estimated unpaid liability
in the amount of $39,800,000.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at October 31, consisted of the following:
- ---------------------------------------------------------------
(in thousands of dollars) 2001 2000
- ---------------------------------------------------------------
Land $ 876 $ 878
Buildings 4,120 4,334
Transportation equipment 15,546 13,127
Machinery and other equipment 73,543 73,056
Leasehold improvements 14,802 15,092
- ---------------------------------------------------------------
108,887 106,487
Less accumulated depreciation and
amortization 65,951 65,753
- ---------------------------------------------------------------
$ 42,936 $ 40,734
===============================================================
4. LONG-TERM DEBT AND CREDIT AGREEMENT
The Company has a $150 million syndicated line of credit which will expire
July 1, 2002. The unsecured revolving credit facility provides, at the
20
Company's option, interest at the prime rate or IBOR+.35%. The facility calls
for a commitment fee payable quarterly, in arrears, of .12% based on the
average, daily, unused portion. For purposes of this calculation, irrevocable
standby letters of credit issued in conjunction with the Company's
self-insurance program plus cash borrowings are considered to be outstanding
amounts. As of October 31, 2001, the total outstanding amount under this
facility was $52,000,000, comprised of $10,000,000 in loans and $42,000,000 in
standby letters of credit. The interest rate at October 31, 2001, on loans
outstanding under this agreement was 2.9%. The Company is required under this
agreement to maintain certain financial ratios and has limitations on outside
borrowings.
One of the provisions of the Company's revolving credit facility required a
fixed charge ratio to be maintained at the end of each quarterly reporting
period. As a result of its fiscal 2001 fourth quarter loss, the Company's fixed
charge ratio did not meet this requirement for the quarter ended October 31,
2001. The Company received a waiver from its lenders addressing the deficiency
for the quarter ended October 31, 2001. The Company was in compliance with all
other debt covenants as of October 31, 2001.
The Company has a loan agreement with a major U.S. bank with a balance of
$1,808,000, at October 31, 2001. This loan bears interest at a fixed rate of
6.78% with annual payments of principal, in varying amounts, and interest due
February 15, 2002 and 2003.
The long-term debt and credit facility of $11,819,000 matures in the years
ending October 31 as follows: $10,877,000 in 2002 and $942,000 in 2003.
Long-term debt at October 31, is summarized as follows:
- ---------------------------------------------------------------
(in thousands of dollars) 2001 2000
- ---------------------------------------------------------------
Revolving credit facility with interest at
2.9 - 9.5% $10,000 $35,000
Note payable to bank with interest at 6.78% 1,808 2,622
Other 11 54
- ---------------------------------------------------------------
11,819 37,676
Less current portion 10,877 865
- ---------------------------------------------------------------
$ 942 $36,811
===============================================================
5. EMPLOYEE BENEFIT PLANS
All of the Company's employee benefit plans are unfunded, thus there is no
additional pension liability and hence no other comprehensive income to
disclose.
(a) RETIREMENT AGREEMENTS
The Company has unfunded retirement agreements for approximately 52 current
and former directors and senior executives, many of which are fully vested. The
agreements provide for annual benefits for ten years commencing at the later of
the respective retirement dates of those executives or age 65. The benefits are
accrued over various periods based on expected retirement dates. During 2001,
2000 and 1999, amounts accrued under these agreements were $506,000, $684,000
and $674,000, respectively. Payments were made in 2001, 2000 and 1999 in the
amounts of $242,000, $171,000 and $231,000, respectively. At October 31, 2001,
the present value of estimated future payments under these agreements is
approximately $4,400,000.
(b) 401(k) AND PROFIT SHARING PLAN
The Company has a profit sharing and 401(k) plan covering certain qualified
employees, which includes employer participation in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. The plan allows
participants to make pretax contributions and the Company matches certain
percentages of employee contributions depending on the participant's length of
service. The profit sharing portion of the plan is discretionary and
noncontributory. All amounts contributed to the plan are deposited into a trust
fund administered by independent trustees.
The Company provided for profit sharing contributions of $1,643,000 for
1999. No contribution was provided for fiscal year 2001 and 2000. The Company's
matching 401(k) contributions required by the 401(k) plan for 2001, 2000 and
1999 were approximately $1,534,000, $1,191,000 and $1,210,000, respectively.
Effective January 1, 2002, the Company is amending its plan to adopt the
"safe harbor" rules of 401(k) plans. These rules contain more generous company
match provisions and cover many employees not previously included. Therefore,
the Company will incur additional future costs, which will be dependent on
increased levels of voluntary participation.
21
(c) SERVICE AWARD BENEFIT PLAN
In 1989, the Company adopted an unfunded service award benefit plan, with a
retroactive vesting period of five years. This plan is a "severance pay plan" as
defined by the Employee Retirement Income Security Act (ERISA) and covers
certain qualified employees. The plan provides participants, upon termination,
with a guaranteed seven days pay for each year of employment subsequent to
November 1, 1989. The Company, at its discretion, may also award additional days
each year.
Effective January 1, 2002, this plan will be amended to no longer award any
additional days to employees. The enhancement of the 401(k) plan has replaced
benefits previously provided under this plan. The Company will continue to incur
interest costs related to this plan as the value of previously earned benefits
continues to increase.
Net cost of the plan is comprised of:
- -----------------------------------------------------------------
(in thousands of dollars) 2001 2000 1999
- -----------------------------------------------------------------
Service cost $ 427 $ 380 $ 396
Interest 358 318 255
- -----------------------------------------------------------------
Net cost $ 785 $ 698 $ 651
Actuarial present value of:
Vested benefit obligation $4,479 $3,895 $3,724
Accumulated benefit obligation $4,662 $4,067 $3,850
Projected benefit obligation $5,342 $4,746 $4,571
=================================================================
Assumptions used in accounting for the plan as of October 31 were:
- -------------------------------------------------
2001 2000 1999
- -------------------------------------------------
Weighted average discount
rate 7.5% 7.5% 6.5%
Rate of increase in
compensation level 5.0% 5.0% 5.0%
=================================================
(d) PENSION PLAN UNDER COLLECTIVE BARGAINING
Certain qualified employees of the Company are covered under
union-sponsored collectively bargained multi-employer defined benefit plans.
Contributions for these plans were approximately $30,259,000, $26,913,000 and
$25,516,000 in 2001, 2000 and 1999, respectively. These plans are not
administered by the Company and contributions are determined in accordance with
provisions of negotiated labor contracts.
6. LEASE COMMITMENTS AND RENTAL EXPENSE
The Company is obligated under noncancelable operating leases for various
facilities and equipment.
As of October 31, 2001, future minimum lease commitments under
noncancelable operating leases are as follows:
- ---------------------------------------------------------------
Years ending (in thousands of dollars)
- ---------------------------------------------------------------
2002 $ 45,888
2003 36,139
2004 23,945
2005 17,613
2006 12,671
Thereafter 65,652
- ---------------------------------------------------------------
Total minimum lease commitments $201,908
===============================================================
Rental expense for the years ended October 31, is summarized as follows:
- --------------------------------------------------------------
(in thousands of dollars) 2001 2000 1999
- --------------------------------------------------------------
Minimum rentals under
noncancelable leases $ 55,780 $ 53,387 $52,231
Contingent rentals 43,645 42,641 41,441
Short-term rental agreements 3,911 4,682 2,758
- --------------------------------------------------------------
$103,336 $100,710 $96,430
==============================================================
Contingent rentals are applicable to leases of parking lots and garages and
are based on percentages of the gross receipts attributable to the related
facilities.
7. REDEEMABLE CUMULATIVE PREFERRED STOCK
On June 23, 1993, the Company authorized and on September 1, 1993, issued
6,400 shares of preferred stock having a par value of $0.01 per share shares in
conjunction with the acquisition of System Parking. These shares designated as
Series B 8% Senior Redeemable Cumulative Preferred Stock (Series B Preferred
Stock) were entitled to one vote per share on all matters upon which common
stockholders were entitled to vote and had a redemption price of $1,000 per
share, together with accrued and unpaid dividends thereon. Redemption of the
Series B Preferred Stock was at the option of the holders for any or all of the
outstanding shares after September 1, 1998 or at the option of the Company after
September 1, 2001. The total redemption value of the shares outstanding at
October 31, 2000 in an amount of $6,400,000 was classified on the Company's
balance sheet as redeemable cumulative preferred stock. In the event of any
liquidation, dissolution or winding up of the affairs of the Company, holders of
the Series B Preferred Stock would have been paid the redemption price plus all
accrued dividends to the date of liquidation, dissolu-
22
tion or winding up of affairs before any payment to other stockholders.
On September 4, 2001, the Company redeemed 6,400 shares of Series B 8%
Senior Redeemable Cumulative Preferred Stock having a par value of $0.01 per
share and redemption price of $1,000 per share.
Dividends of $128,000 were due and payable each quarter on the Series B
Preferred Stock. In fiscal 2001, $128,000 was paid in each of the first three
quarters and $48,000 was paid for the remaining period at time of redemption.
The dividends were deducted from net income in determining net income per common
share.
8. CAPITAL STOCK
The Company is authorized to issue 500,000 shares of preferred stock, of
which 50,000 shares have been designated as Series A Junior Participating
Preferred Stock of $.01 par value. None of these preferred shares have been
issued.
In March 1998, the Company's Board of Directors adopted a stockholder
rights plan to replace an existing rights plan that expired on April 22, 1998.
The new plan provides for a dividend distribution of one preferred stock
purchase right (a "Right") for each outstanding share of common stock,
distributed to stockholders of record on April 22, 1998. The Rights will be
exercisable only if a person or group acquires 20% or more of the Company's
common stock (an "Acquiring Person") or announces a tender offer for 20% or more
of the common stock. Each Right will entitle stockholders to buy one-thousandth
of a share of newly created Participating Preferred Stock, par value $.01 per
share, of the Company at an initial exercise price of $175 per Right, subject to
adjustment from time to time. However, if any person becomes an Acquiring
Person, each Right will then entitle its holder (other than the Acquiring
Person) to purchase at the exercise price common stock (or, in certain
circumstances, Participating Preferred Stock) of the Company having a market
value at that time of twice the Right's exercise price. These Rightsholders
would also be entitled to purchase an equivalent number of shares at the
exercise price if the Acquiring Person were to control the Company's Board of
Directors and cause the Company to enter into certain mergers or other
transactions. In addition, if an Acquiring Person acquired between 20% and 50%
of the Company's voting stock, the Company's Board of Directors may, at its
option, exchange one share of the Company's common stock for each Right held
(other than Rights held by the Acquiring Person). Rights held by the Acquiring
Person will become void. The Rights Plan excludes from its operation The
Theodore Rosenberg Trust and The Sydney J. Rosenberg Trust, and certain related
persons, and, as a result, their holdings will not cause the Rights to become
exercisable or nonredeemable or trigger the other features of the Rights. The
Rights will expire on April 22, 2008, unless earlier redeemed by the Board at
$0.01 per Right.
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related interpretations. In the three-year period ended
October 31, 2001, the exercise price of all options granted to employees had
equivalent fair market values. Therefore, no compensation expense has been
recognized in the financial statements for employee stock awards.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", requires the disclosure of pro forma net earnings and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1996. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models. The use of
these models requires subjective assumptions, including future stock price
volatility and expected time to exercise, which can have a significant effect on
the calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life 9.2 years, 9.1 years, and 11.9 years from the date of
grant in fiscal 2001, 2000, and 1999, respectively; expected stock price
volatility of 28.1%, 27.7% and 26.2%, respectively; expected dividend yields of
2.2%, 3.1% and 1.9%, and risk free interest rates of 5.3%, 6.7%, and 5.0% in
fiscal 2001, 2000, and 1999, respectively.
The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
fiscal awards had been amortized to expense over the vesting period of the
awards, pro forma net earnings would have been $29,102,000 ($1.15 per diluted
share) for fiscal 2001, $39,477,000 ($1.64 per
23
diluted share) for fiscal 2000, and $35,409,000 ($1.47 per diluted share) for
fiscal 1999. The impact of outstanding stock options granted prior to fiscal
1996 has been excluded from the pro forma calculation; accordingly, the fiscal
2001, 2000, and 1999 pro forma adjustments are not indicative of future period
pro forma adjustments, when the calculation will apply to all future applicable
stock grants.
Under the "Price-Vested" Performance Stock Option Plan options were granted
with a ten-year term. If, during the first four years, the stock price achieved
and maintained a set price for ten out of thirty consecutive trading days, the
options associated with the price would vest. The prices established were $25,
$30, $35 and $40, with 25% of the options vesting at each price point. If, at
the end of four years, any of the stock price performance targets were not
achieved, then the remaining options would vest at the end of eight years from
the date the options were granted. SFAS 123 requires that the projected value of
the options be determined on the grant date and recognized over the period in
which the options are earned (the vesting period). For these options, the
projected value of the options was determined and that value was to be
recognized over the eight-year vesting period unless vesting occurs at an
earlier date. In fiscal 2001 ABM stock achieved and maintained for the requisite
ten-day period, the price required for the third target. As a result, 75% of all
options issued prior to the current fiscal year are now vested, and the
projected value of that 75% less any amounts previously recognized for
outstanding options is recognized in this year's pro forma calculation.
Additionally as a result of the price performance, the options awarded during
the current fiscal year will vest 75% in December 2001, the one-year anniversary
of the grant date. Of the remaining 25% of the granted options yet to be vested,
one-eighth is recognized annually from the grant date, unless vesting occurs at
an earlier date by the stock achieving a price of $40 per share and maintaining
that price for ten out of 30 consecutive trading days.
"Time-Vested" Incentive Stock Option Plan, as Amended
In 1987, the Company adopted a stock option plan under which 1,200,000
shares were reserved for grant until December 31, 1996. In March 1994, this plan
was amended to reserve an additional 1,000,000 shares. In March 1996, the plan
was amended again to reserve another 2,000,000 shares. Options which terminate
without being exercised may be reissued. At October 31, 2001, 637,850 shares
remained available for grant.
Transactions under this plan are summarized as follows:
- ---------------------------------------------------------------
Weighted
Number Average
of Exercise
Options Price
- ---------------------------------------------------------------
Balance October 31, 1998 2,012,000 $16.40
Granted (Weighted average fair value of
$8.34) 126,000 $30.86
Exercised (296,000) $10.28
Terminated (35,000) $18.30
- ---------------------------------------------------------------
Balance October 31, 1999 1,807,000 $18.37
Granted (Weighted average fair value of
$6.18) 225,000 $21.22
Exercised (155,000) $11.29
Terminated (25,000) $24.53
- ---------------------------------------------------------------
Balance October 31, 2000 1,852,000 $19.23
Granted (Weighted average fair value of
$9.50) 273,000 $30.31
Exercised (434,000) $13.76
Terminated (108,000) $24.52
- ---------------------------------------------------------------
Balance October 31, 2001 1,583,000 $22.28
===============================================================
- -----------------------------------------------------------------------------
Outstanding Exercisable
- -------------------------------------------------------- ------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Contractual Exercise of Exercise
Prices Options Life (Years) Price Options Price
- -----------------------------------------------------------------------------
$ 8.49 - 13.32 263,000 2.4 $ 9.39 263,000 $ 9.39
$17.44 - 28.22 817,000 5.9 $20.53 572,000 $19.40
$29.41 - 36.59 503,000 7.7 $31.85 149,000 $32.88
=============================================================================
"Price-Vested" Performance Stock Option Plan
In December 1996, the Company adopted a stock option plan under which
1,500,000 shares have been reserved. The options expire 10 years after the date
of grant and any options which terminate without being exercised may be
reissued. Each option will have a pre-defined vesting price which provides for
accelerated vesting if the fair market value of the Company's common stock is
equal to or greater than the pre-defined vesting price for 10 trading days in
any period of 30 consecutive trading days. Vested options will become
exercisable only after the first anniversary of its grant date. Any option that
has not vested prior to the fourth anniversary of its grant date will vest on
the eighth anniversary of its grant date. At October 31, 2001, 100,000 shares
remained available for grant.
24
Transactions under this plan are summarized as follows:
- ---------------------------------------------------------------
Weighted
Number Average
of Exercise
Options Price
- ---------------------------------------------------------------
Balance October 31, 1998 1,150,000 $22.40
Exercised (15,000) $20.00
- ---------------------------------------------------------------
Balance October 31, 1999 1,135,000 $22.37
Granted (Weighted average fair value of
$7.01) 160,000 $20.75
Exercised (75,000) $20.00
Terminated (75,000) $22.98
- ---------------------------------------------------------------
Balance October 31, 2000 1,145,000 $22.33
Granted (Weighted average fair value of
$10.96) 180,000 $30.75
Exercised (210,000) $20.18
Terminated (85,000) $27.90
- ---------------------------------------------------------------
Balance October 31, 2001 1,030,000 $23.78
===============================================================
- ----------------------------------------------------------------------------
Outstanding Exercisable
- ----------------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Contractual Exercise of Exercise
Prices Options Life (Years) Price Options Price
- ----------------------------------------------------------------------------
$20.00 - 25.59 750,000 5.6 $20.40 530,000 $20.42
$30.75 - 36.59 280,000 8.2 $32.84 50,000 $36.59
============================================================================
"Age-Vested" Career Stock Option Plan, as Amended
In 1984, the Company adopted a stock option plan whereby 680,000 shares
were reserved for grant. In March of 1996, another 1,000,000 shares were
reserved for grant under the plan. As amended December 20, 1994, options which
have been granted at fair market value are 50% exercisable when the option
holders reach their 61st birthday and the remaining 50% will vest on their 64th
birthday. To the extent vested, the options may be exercised at any time prior
to one year after termination of employment. Options which terminate without
being exercised may be reissued. At October 31, 2001, 418,000 shares remained
available for grant.
Transactions under this plan are summarized as follows:
- ---------------------------------------------------------------
Weighted
Number Average
of Exercise
Options Price
- ---------------------------------------------------------------
Balance October 31, 1998 1,184,000 $18.29
Granted (Weighted average fair value of
$14.59) 75,000 $31.88
Exercised (56,000) $ 6.22
Terminated (16,000) $ 9.31
- ---------------------------------------------------------------
Balance October 31, 1999 1,187,000 $19.86
Granted (Weighted average fair value of
$7.54) 75,000 $20.75
Exercised (56,000) $ 5.92
Terminated (105,000) $19.80
- ---------------------------------------------------------------
Balance October 31, 2000 1,101,000 $20.96
Granted (Weighted average fair value of
$12.84) 73,000 $30.75
Exercised (211,000) $11.30
Terminated (46,000) $20.57
- ---------------------------------------------------------------
Balance October 31, 2001 917,000 $23.00
===============================================================
- ----------------------------------------------------------------------------
Outstanding Exercisable
- ----------------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Contractual Exercise of Exercise
Prices Options Life (Years) Price Options Price
- ----------------------------------------------------------------------------
$5.72 154,000 4.6 $ 5.72 6,000 $ 5.72
$11.25 - 19.44 130,000 6.4 $11.72 25,000 $11.25
$20.75 60,000 15.3 $20.75 -- --
$29.41 - 36.59 573,000 11.7 $30.45 89,000 $30.62
============================================================================
Employee Stock Purchase Plan, as Amended
In 1985, the Company adopted an employee stock purchase plan under which
sale of 5,000,000 shares of its common stock has been authorized. In March of
1996 and 1999, sales of an additional 1,200,000 shares each were authorized, and
again in March of 2001, 1,200,000 additional shares were authorized under this
plan. The purchase price of the shares under the plan is the lesser of 85% of
the fair market value at the commencement of each plan year or 85% of the fair
market value on the date of purchase. Employees may designate up to 10% of their
compensation for the purchase of stock. During 2001, 2000, and 1999, 527,000,
635,000, and 602,000 shares of stock were issued under the plan for an aggregate
purchase price of $12,142,000, $12,588,000 and $13,632,000, respectively. The
weighted average fair value of those purchase rights granted in 2001, 2000, and
1999 was $7.00, $7.27, and $7.32, respectively, and were issued at a weighted
average price of $23.04, $19.84 and $23.25, respectively. At October 31, 2001,
930,000 shares remained unissued under the plan.
25
9. INCOME TAXES
The provision for income taxes is made up of the following components for
each of the years ended October 31:
- -----------------------------------------------------------------
(in thousands of dollars) 2001 2000 1999
- -----------------------------------------------------------------
Current
Federal $ 28,046 $29,793 $29,807
State 4,170 4,051 4,286
Foreign 41 23 9
Deferred
Federal (11,002) (5,071) (6,022)
State (1,136) (446) (515)
- -----------------------------------------------------------------
$ 20,119 $28,350 $27,565
=================================================================
Income tax expense attributable to income from operations differs from the
amounts computed by applying the U.S. statutory rates to pretax income from
operations as a result of the following for the years ended October 31:
- --------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State and local taxes on income, net of
federal tax benefit 3.6 3.1 3.5
Tax credits (5.1) (3.6) (2.6)
Nondeductible expenses and other -- net 4.5 4.5 5.1
- --------------------------------------------------------------
38.0% 39.0% 41.0%
==============================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at October 31,
are presented below:
- ----------------------------------------------------------------
(in thousands of dollars) 2001 2000
- ----------------------------------------------------------------
Deferred tax assets:
Self-insurance claims $43,183 $33,214
Bad debt allowance 3,652 2,464
Deferred and other compensation 13,579 12,063
Goodwill amortization 5,026 4,099
Other 1,952 2,967
- ----------------------------------------------------------------
Total gross deferred tax assets 67,392 54,807
- ----------------------------------------------------------------
Deferred tax liabilities:
Deferred software development cost (3,817) (2,038)
Union pension contributions (1,369) (2,701)
- ----------------------------------------------------------------
Total gross deferred tax liabilities (5,186) (4,739)
- ----------------------------------------------------------------
Net deferred tax assets $62,206 $50,068
================================================================
Management has determined that it is more likely than not that the total
net deferred tax asset will be realized.
10. ACQUISITIONS AND DIVESTITURES
All acquisitions have been accounted for using the purchase method of
accounting; operations of 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 over fair
value of the net assets acquired is generally included in goodwill. Most
purchase agreements provide for contingent payments based on the annual pretax
income for subsequent periods ranging generally from three to five years. Any
such future payments are generally capitalized as goodwill when paid. Cash paid
for acquisitions, including any contingent amounts based on subsequent earnings,
was $23,401,000 in 2001. In addition, common shares, with a fair market value of
$1,666,000 at the date of issuance, were issued in 2001 under the contingent
payment provisions of a prior year acquisition. As these acquisitions were not
significant, pro forma information is not included in these financial
statements.
Acquisitions and dispositions made during the fiscal year 2001 are
discussed below:
Effective February 1, 2001, the Company acquired the operations and
selected assets of Arcade Cleaning L.P., a janitorial services company, with
customers located in the Northeast and Midwest regions. The terms included a
cash payment made at closing plus annual contingent payments based on operating
profits to be made over five years. This acquisition contributed $47,141,000 in
revenues in fiscal year 2001.
Effective March 26, 2001, the Company acquired selected customer contracts
and certain assets of SLI Lighting Solutions, a lighting services company, with
customers in the Mid-Atlantic and Southeastern regions. The terms included a
cash payment made at closing plus semi-annual contingent payments based on gross
profits to be made over three years. This acquisition contributed $13,455,000 in
revenues in fiscal year 2001.
Effective April 1, 2001, the Company acquired the operations and selected
assets of CarpetMaster Cleaning, a provider of janitorial and related services
in Albany and the surrounding capital district of New York. The terms included a
cash payment, of which 51% was made at closing and 49% paid in May 2001, plus
annual contingent payments based on operating profits to be made over five
years. This acquisition contributed $3,946,000 in revenues in fiscal year 2001.
Effective June 11, 2001, the Company acquired the operations and selected
assets of Sundown Security, Incorporated, a security services company, with
customers located in the Sacramento, California
26
area. The terms included a cash payment made at closing plus annual contingent
payments based on operating profits to be made over five years. This acquisition
contributed $1,130,000 in revenues in fiscal year 2001.
The aggregate consideration paid for these acquisitions was $11,749,000
including $7,222,000 allocated to goodwill.
Effective April 30, 2001, the Company sold its Easterday Janitorial Supply
Division to AmSan West, Inc. In fiscal 2000, this Division had annual revenues
of $43,868,000, of which 27% were intercompany sales, and assets of $11,574,000.
In 2001, this Division contributed $15,054,000 in revenues after intercompany
sales elimination. The sale of Easterday will allow the Company to focus on its
building maintenance and other operational services. The sale does not have a
material effect on the Company's consolidated net assets, financial position or
results of operations. The sales price for Easterday was $12,000,000, which was
received on May 1, 2001. Included in operating profits for the fiscal year ended
October 31, 2001, is a pre-tax gain of $718,000. The sales price of $12,000,000
represents a $3,684,000 premium over the book value of the net assets sold. The
pre-tax gain is net of Easterday-specific insurance expenses of $1,250,000,
reserves for sale contingencies (including the guarantee of sold receivables and
expenses of winding-up Easterday operations) of $1,045,000, write-offs of
intangible assets of $294,000, and second quarter operating losses of $377,000.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate fair value due to the short-maturity of these
instruments.
Financial instruments included in investments and long-term receivables
have no quoted market prices and, accordingly, a reasonable estimate of fair
market value could not be made without incurring excessive costs. However, the
Company believes by reference to stated interest rates and security held that
the fair value of the assets would not differ significantly from the carrying
value.
The fair value of the Company's long-term debt approximates carrying value
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
12. COMMITMENTS AND CONTINGENCIES
The Company and certain of its subsidiaries have been named defendants in
certain litigation arising in the ordinary course of business. In the opinion of
management, based on advice of legal counsel, such matters should have no
material effect on the Company's financial position, results of operations or
cash flows.
13. SEGMENT INFORMATION
Under Statements of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information" segment
information is presented under the management approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS 131 also requires disclosures about products and
services, geographic areas and major customers. The Company is organized into
nine separate operating segments as defined under SFAS 131. However, only the
ABM Janitorial, Amtech Elevator, ABM Engineering, Amtech Lighting and Ampco
System Parking operating segments are reportable using the quantitative
threshold criteria under SFAS 131. Included in other segments are ABM Service
Network, American Commercial Security, CommAir Mechanical and Easterday
Janitorial Supply that was sold, as previously reported, during the second
quarter of fiscal year 2001. In addition, the corporate expenses are not
allocated. The significant increase in unallocated Corporate expenses for 2001
includes the $20,000,000 insurance adjustment (see Footnote 2 INSURANCE) and
centralization of marketing and sales expenses compared to the prior year. While
virtually all insurance claims arise from the operating divisions, this
adjustment is recorded as unallocated corporate expense. Had the Company
allocated the insurance adjustment among the divisions, the reported pre-tax
operating profits of the divisions, as a whole, would have been reduced by
$20,000,000 with an equal and offsetting change to unallocated Corporate
expenses and therefore no change to consolidated pre-tax earnings. All of these
segments are distinct business units. They are managed separately because of
their unique services, technology and marketing requirements. Nearly 100% of
the operations and related revenues are within the United States and no single
customer accounts for more than 5% of sales.
27
SEGMENT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------
Ampco
(in thousands of dollars) ABM System ABM Amtech Amtech Other
FOR THE YEAR ENDED OCTOBER 31, 2001 Janitorial Parking Engineering Lighting Elevator Segments Corporate
- ----------------------------------------------------------------------------------------------------------------------
Revenues and other income $1,159,914 $165,940 $171,008 $144,319 $121,371 $186,168 $ 1,318
Intersegment revenues 572 - - 217 - 5,813 -
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $1,160,486 $165,940 $171,008 $144,536 $121,371 $191,981 $ 1,318
======================================================================================================================
Operating profit $ 59,862 $ 4,050 $ 9,035 $ 11,038 $ 4,820 $ 8,000 $(41,258)
Interest expense (917) - (7) - (2) (9) (1,667)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 58,945 $ 4,050 $ 9,028 $ 11,038 $ 4,818 $ 7,991 $(42,925)
======================================================================================================================
Identifiable assets $ 285,979 $ 86,837 $ 47,948 $ 82,528 $ 42,127 $ 38,371 $ 99,310
======================================================================================================================
Depreciation expense $ 4,980 $ 1,980 $ 79 $ 1,542 $ 248 $ 726 $ 4,155
======================================================================================================================
Amortization expense $ 7,909 $ 2,749 $ 369 $ 945 $ 192 $ 454 $ -
======================================================================================================================
Capital expenditures $ 3,659 $ 1,612 $ 79 $ 2,572 $ 255 $ 1,606 $ 7,139
======================================================================================================================
FOR THE YEAR ENDED OCTOBER 31, 2000
- ----------------------------------------------------------------------------------------------------------------------
Revenues and other income $1,052,865 $172,427 $156,314 $118,054 $114,409 $193,073 $ 415
Intersegment revenues 546 - - 302 - 11,954 -
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $1,053,411 $172,427 $156,314 $118,356 $114,409 $205,027 $ 415
======================================================================================================================
Operating profit $ 53,050 $ 8,726 $ 8,164 $ 10,088 $ 6,832 $ 6,362 $(17,209)
Interest expense (9) - - - (1) (10) (3,300)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 53,041 $ 8,726 $ 8,164 $ 10,088 $ 6,831 $ 6,352 $(20,509)
======================================================================================================================
Identifiable assets $ 274,704 $ 92,401 $ 45,459 $ 65,160 $ 37,356 $ 56,120 $ 70,785
======================================================================================================================
Depreciation expense $ 4,962 $ 1,834 $ 80 $ 1,260 $ 316 $ 959 $ 2,854
======================================================================================================================
Amortization expense $ 6,817 $ 2,742 $ 366 $ 735 $ 192 $ 407 $ -
======================================================================================================================
Capital expenditures $ 4,568 $ 1,521 $ 524 $ 1,469 $ 390 $ 692 $ 9,553
======================================================================================================================
FOR THE YEAR ENDED OCTOBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
Revenues and other income $ 933,293 $162,358 $153,758 $ 95,521 $ 96,618 $187,306 $ 862
Intersegment revenues 374 - 188 270 - 12,567 -
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $ 933,667 $162,358 $153,946 $ 95,791 $ 96,618 $199,873 $ 862
======================================================================================================================
Operating profit $ 49,017 $ 8,385 $ 8,352 $ 7,457 $ 6,651 $ 7,128 $(17,799)
Interest expense (13) - - - - (10) (1,936)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 49,004 $ 8,385 $ 8,352 $ 7,457 $ 6,651 $ 7,118 $(19,735)
======================================================================================================================
Identifiable assets $ 242,117 $ 84,360 $ 34,864 $ 59,921 $ 32,411 $ 52,798 $ 56,913
======================================================================================================================
Depreciation expense $ 4,575 $ 1,998 $ 101 $ 1,454 $ 381 $ 1,032 $ 1,274
======================================================================================================================
Amortization expense $ 5,866 $ 2,568 $ 368 $ 531 $ 192 $ 358 $ -
======================================================================================================================
Capital expenditures $ 6,632 $ 1,763 $ 168 $ 1,506 $ 354 $ 1,468 $ 7,560
======================================================================================================================
- ------------------------------------ ---------------------------
(in thousands of dollars) CONSOLIDATED
FOR THE YEAR ENDED OCTOBER 31, 2001 Eliminations TOTALS
- ------------------------------------ ---------------------------
Revenues and other income $ - $1,950,038
Intersegment revenues (6,602) -
- -----------------------------------------------------------------
Total revenues $ (6,602) $1,950,038
=================================================================
Operating profit $ - $ 55,547
Interest expense - (2,602)
- -----------------------------------------------------------------
Income before income taxes $ - $ 52,945
=================================================================
Identifiable assets $ - $ 683,100
=================================================================
Depreciation expense $ - $ 13,710
=================================================================
Amortization expense $ - $ 12,618
=================================================================
Capital expenditures $ - $ 16,922
=================================================================
FOR THE YEAR ENDED OCTOBER 31, 2000
- -----------------------------------------------------------------
Revenues and other income $ - $1,807,557
Intersegment revenues (12,802) -
- -----------------------------------------------------------------
Total revenues $(12,802) $1,807,557
=================================================================
Operating profit $ - $ 76,013
Interest expense - (3,320)
- -----------------------------------------------------------------
Income before income taxes $ - $ 72,693
=================================================================
Identifiable assets $ - $ 641,985
=================================================================
Depreciation expense $ - $ 12,265
=================================================================
Amortization expense $ - $ 11,259
=================================================================
Capital expenditures $ - $ 18,717
=================================================================
FOR THE YEAR ENDED OCTOBER 31, 1999
- -----------------------------------------------------------------
Revenues and other income $ - $1,629,716
Intersegment revenues (13,399) -
- -----------------------------------------------------------------
Total revenues $(13,399) $1,629,716
=================================================================
Operating profit $ - $ 69,191
Interest expense - (1,959)
- -----------------------------------------------------------------
Income before income taxes $ - $ 67,232
=================================================================
Identifiable assets $ - $ 563,384
=================================================================
Depreciation expense $ - $ 10,815
=================================================================
Amortization expense $ - $ 9,883
=================================================================
Capital expenditures $ - $ 19,451
=================================================================
Intersegment revenues are recorded at prices negotiated between the entities.
Certain prior year amounts have been restated to conform to the current year's
presentation.
28
14. QUARTERLY INFORMATION (UNAUDITED)
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Fiscal Quarter
-----------------------------------------
First Second Third Fourth YEAR
- ------------------------------------------------------------------------------------------------------------
2001
Revenues and other income $470,419 $490,494 $492,454 $496,671 $1,950,038
Gross profit 57,338 64,436 62,679 43,251 227,704
Net income (loss) 8,404 12,054 13,233 (865) 32,826
Net income (loss) per common share:
Basic 0.36 0.50 0.55 (0.04) 1.36
Diluted 0.34 0.48 0.52 (0.04) 1.30
- ------------------------------------------------------------------------------------------------------------
2000
Revenues and other income $428,581 $439,988 $461,890 $477,098 $1,807,557
Gross profit 52,883 56,684 60,136 63,856 233,559
Net income 7,527 9,880 12,445 14,491 44,343
Net income per common share:
Basic 0.33 0.43 0.54 0.64 1.94
Diluted 0.32 0.41 0.52 0.60 1.85
- ------------------------------------------------------------------------------------------------------------
SCHEDULE II
CONSOLIDATED VALUATION ACCOUNTS
Years ended October 31, 2001, 2000 and 1999
(in thousands)
- --------------------------------------------------------------------------------
Balance Charges to Deductions Other Balance
Beginning Costs and Net of Additions End of
of Year Expenses Recoveries (Reductions) Year
- ---------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
Years ended October 31,
2001 $8,825 $6,134 $(5,539) -- $9,420
2000 7,490 2,971 (1,636) -- 8,825
1999 6,761 2,257 (1,528) -- 7,490
- ---------------------------------------------------------------------------------------------------------------------
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding the Company's directors and
executive officers not included in Part I under "Executive Officers" is
incorporated by reference to the information set forth under the captions
"Election of Directors" and "Section 16(a) Beneficial Ownership Compliance
Reporting" contained in the Proxy Statement to be used by the Company in
connection with its 2002 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information set forth under the caption "Executive Compensation" contained in
the Proxy Statement to be used by the Company in connection with its 2002 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information set forth under the caption "Principal Stockholders" contained in
the Proxy Statement to be used by the Company in connection with its 2002 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information set forth under the captions "Executive Compensation" and "Further
Information Concerning the Board of Directors" contained in the Proxy Statement
to be used by the Company in connection with the 2002 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Consolidated Financial Statements of ABM Industries Incorporated
and Subsidiaries (see Item 8):
Independent Auditors' Report
Consolidated Balance Sheets -- October 31, 2001 and 2000
Consolidated Statements of Income -- Years ended October 31,
2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity and Comprehensive
Income -- Years ended October 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -- Years ended October 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedule of ABM Industries
Incorporated and Subsidiaries (see Item 8):
Schedule II -- Consolidated Valuation Accounts -- Years ended
October 31, 2001, 2000 and 1999
All other schedules are omitted because they are not applicable or because
the required information is included in the consolidated financial statements or
the notes thereto.
The individual financial statements of the registrant's subsidiaries have
been omitted since the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements are wholly owned
subsidiaries.
3. Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of fiscal year
2001.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to its
Form 10-K Annual Report to be signed on its behalf by the undersigned thereunto
duly authorized.
ABM INDUSTRIES INCORPORATED
By: /s/ Henrik C. Slipsager
--------------------------------------
Henrik C. Slipsager
President, Chief Executive
Officer, and Director
February 8, 2002
31
EXHIBIT INDEX
- ---------------------------------------------------------------
Exhibit
Number Description
- ---------------------------------------------------------------
3.1[a] Restated Certificate of Incorporation of ABM
Industries Incorporated, dated March 22, 2000
3.2[u] By-laws, as amended July 23, 2001
4.1[k] Credit Agreement, dated June 25, 1997, between
Bank of America National Trust and Savings
Association and the Company
4.2[q] First Amendment to Credit Agreement dated as of
October 31, 1997
4.3[t] Second Amendment to Credit Agreement dated as of
September 22, 1999
4.5[c] Business Loan Agreement dated February 13, 1996
10.3[b]* Supplemental Medical and Dental Plan
10.4[j]* 1984 Executive Stock Option Plan as amended
effective December 19, 1995 (now known as "Age-
Vested" Career Stock Option Plan)
10.13[j]* 1987 Stock Option Plan as amended effective
December 19, 1995 (now known as "Time-Vested"
Incentive Stock Option Plan)
10.16[d] Rights Agreement, dated as of March 17, 1998,
between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent
10.19[e]* Service Award Plan
10.21[f]* Amended and Restated Retirement Plan for Outside
Directors
10.22[f]* Amendment No. 1 to Service Award Plan
10.23[g]* Form of Outside Director Retirement Agreement
(dated June 16, 1992)
10.27[h] Guaranty of American Building Maintenance
Industries, Inc.
10.28[i]* Deferred Compensation Plan
10.29[i]* Form of Existing Executive Employment Agreement
Other Than Those Specifically Named
10.30[l]* Executive Employment Agreement with Martinn H.
Mandles, as amended by Amendments One and Two
10.35[l]* Form of Amendments of Corporate Executive
Employment Agreements with Other Than Those Named
10.36[m]* Form of Indemnification for Directors
10.39[n]* Third Amendment of Corporate Executive Employment
Agreement with Martinn H. Mandles
10.40[p]* 1996 ABM Industries Incorporated Long-Term Senior
Executive Stock Option Plan (now known as
"Price-Vested" Performance Stock Option Plan)
10.40[o]* Fourth Amendment of Corporate Executive
Employment Agreement with Martinn H. Mandles
10.47[t]* Amendment No. 1 to the 1987 Incentive Stock
Option Plan
10.48[t]* Amendment No. 2 to the ABM Industries
Incorporated 1987 Incentive Stock Option Plan
(December 19, 1994 Restatement)
10.49[t]* Amendment No. 3 to the "Time-Vested" Incentive
Stock Option Plan
10.50[t]* Amendment No. 4 to the ABM Industries
Incorporated "Time-Vested" Incentive Stock Option
Plan (December 19, 1994 Restatement)
10.51[t]* Amendment No. 1 to the 1984 Executive Stock
Option Plan
10.52[t]* Amendment No. 2 to the 1984 Executive Stock
Option Plan (December 1994 Restatement)
10.53[t]* Amendment No. 3 to the ABM Industries
Incorporated "Age-Vested" Career Stock Option
Plan (December 19, 1995 Restatement)
10.54[t]* Amendment No. 1 to the Long-Term Senior Executive
Incentive Stock Option Plan Adopted December 1996
10.55[t]* Amendment No. 2 to the "Price-Vested" Performance
Stock Option Plan
10.56[t]* Amendment No. 3 to the ABM Industries
Incorporated "Price-Vested" Performance Stock
Option Plan
10.58[r]* Corporate Executive Employment Agreement with
Henrik C. Slipsager
10.59[r]* Employee Stock Purchase Plan (as amended through
May 1, 2000)
10.60[s]* Amendment No. 1 to Employee Stock Purchase Plan
(May 2000 Restatement)
10.61[v]* Amendment of Division Executive Employment
Agreement -- Increase in Supplemental Executive
Retirement Pension ("SERP") -- with Martinn H.
Mandles
10.62[v]* Corporate Executive Employment Agreement with
Harry H. Kahn
10.63[v]* Corporate Executive Employment Agreement with
Jess E. Benton
10.65[v]* First Amendment of Division Executive Employment
Agreement dated November 1, 2000 with Henrik C.
Slipsager
10.66[v]* Corporate Executive Employment Agreement with
George B. Sundby
10.67[v]* Corporate Executive Employment Agreement with
Donna M. Dell
10.68[v]* First Amendment of Corporate Executive Employment
Agreement dated November 1, 1999 with Donna M.
Dell
21.1[v] Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public
Accountants
- ------------------------------
[a] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended April 30, 2000.
[b] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1984.
[c] Incorporated by reference to the exhibit bearing the same numeric
description, which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended January 31, 1996.
[d] Incorporated by reference to exhibit 4.1 to the Company's report on Form 8-K
dated March 17, 1998.
[e] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1990.
[f] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1991.
[g] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended July 31, 1992.
[h] Incorporated by reference to the exhibit bearing the same numeric reference
which was filed as an exhibit to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended July 31, 1993.
[i] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the
32
Company's annual report on Form 10-K for the fiscal year ended October 31,
1993.
[j] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended April 30, 1996.
[k] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended July 31, 1997.
[l] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1994.
[m] Incorporated by reference to exhibit 10.20 which was filed as an exhibit to
the Company's quarterly report on Form 10-Q for the fiscal quarter ended
April 30, 1991.
[n] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1996.
[o] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended July 31, 1998.
[p] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended April 30, 1997.
[q] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1997.
[r] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarter report
on Form 10-Q for the fiscal quarter ended January 31, 2001.
[s] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarter report on
Form 10-Q for the fiscal quarter ended April 30, 2001.
[t] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 1999.
[u] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's quarterly report
on Form 10-Q for the fiscal quarter ended July 31, 2001.
[v] Incorporated by reference to the exhibit bearing the same numeric
description which was filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended October 31, 2001.
* Management contract, compensatory plan or arrangement.
33
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
ABM Industries Incorporated:
We consent to incorporation by reference in the following Registration
Statements on Form S-8 of ABM Industries Incorporated of our report dated
December 17, 2001, relating to the consolidated balance sheets of ABM Industries
Incorporated and subsidiaries as of October 31, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
October 31, 2001, and related financial statement schedule II, which report
appears in the October 31, 2001, annual report on Form 10-K/A of ABM Industries
Incorporated.
Registration No. Form Plan
- --------------------------------------------------------------------------------
333-78423 S-8 "Age-Vested" Career Stock Option Plan
333-58408 S-8 Employee Stock Purchase Plan
333-78421 S-8 "Time-Vested" Incentive Stock Option Plan
333-48857 S-8 Long-Term Senior Executive Stock Option Plan
/s/ KPMG LLP
- ------------------
KPMG LLP
San Francisco, California
February 7, 2002
