UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

ABM INDUSTRIES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		94-1369354
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
551 Fifth Avenue, Suite 300, New York,
New York		10176
(Address of principal executive offices)		(Zip Code)

212/297-0200

None
(Former name, former address and former fiscal year, if changed since last report)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at May 28, 2010
Common Stock, $0.01 par value per share		52,038,568 shares

 

 

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

FORM 10-Q

For the quarterly period ended April 30, 2010

Table of Contents

PART I. FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Condensed Consolidated Financial Statements			3
Notes to the Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION			31
Item 1. Legal Proceedings			31
Item 1A Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			32
Item 4. Reserved			32
Item 5. Other Information			32
Item 6. Exhibits			32
SIGNATURES			33
Exhibit 10.4
Exhibit 10.5
Exhibit 31.1
Exhibit 31.2
Exhibit 32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

		April 30,				October 31,
(in thousands, except share amounts)		2010				2009
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	20,943			$	34,153
Trade accounts receivable, net of allowances of $10,184 and $10,772 at April 30, 2010 and October 31, 2009, respectively			442,709				445,241
Prepaid income taxes			12,913				13,473
Current assets of discontinued operations			6,009				10,787
Prepaid expenses			39,271				38,781
Notes receivable and other			18,155				21,374
Deferred income taxes, net			52,347				52,171
Insurance recoverables			4,898				5,017
Total current assets			597,245				620,997
Non-current assets of discontinued operations			2,792				4,567
Insurance deposits			42,179				42,500
Other investments and long-term receivables			5,668				6,240
Deferred income taxes, net			57,815				63,444
Insurance recoverables			65,819				67,100
Other assets			31,749				32,446
Investments in auction rate securities			19,634				19,531
Property, plant and equipment, net of accumulated depreciation of $99,592 and $92,563 at April 30, 2010 and October 31, 2009, respectively			56,397				56,892
Other intangible assets, net of accumulated amortization of $48,933 and $43,464 at April 30, 2010 and October 31, 2009, respectively			54,731				60,199
Goodwill			547,880				547,237
Total assets		$	1,481,909			$	1,521,153

See accompanying notes to the condensed consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

						(Continued)
		April 30,				October 31,
(in thousands, except share amounts)		2010				2009
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable		$	57,011			$	84,701
Accrued liabilities
Compensation			85,282				93,095
Taxes — other than income			14,134				17,539
Insurance claims			78,803				78,144
Other			73,400				66,279
Income taxes payable			1,832				1,871
Current liabilities of discontinued operations			1,270				1,065
Total current liabilities			311,732				342,694
Income taxes payable			25,327				17,763
Line of credit			145,000				172,500
Retirement plans and other			31,644				32,963
Insurance claims			266,572				268,183
Total liabilities			780,275				834,103
Commitments and Contingencies
Stockholders’ equity
Preferred stock, $0.01 par value; 500,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 52,018,718 and 51,688,218 shares issued at April 30, 2010 and October 31, 2009, respectively			520				517
Additional paid-in capital			183,377				176,480
Accumulated other comprehensive loss, net of taxes			(1,832	)			(2,423	)
Retained earnings			519,569				512,476
Total stockholders’ equity			701,634				687,050
Total liabilities and stockholders’ equity		$	1,481,909			$	1,521,153

See accompanying notes to the condensed consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands, except per share data)		2010				2009				2010				2009
						(Unaudited)
Revenues		$	855,461			$	855,711			$	1,725,345			$	1,743,183
Expenses
Operating			771,974				766,148				1,554,075				1,553,416
Selling, general and administrative			65,244				64,265				128,046				135,652
Amortization of intangible assets			2,694				2,680				5,469				5,503
Total expenses			839,912				833,093				1,687,590				1,694,571
Operating profit			15,549				22,618				37,755				48,612
Other-than-temporary impairment losses on auction rate security:
Gross impairment losses			101				—				36				—
Impairments recognized in other comprehensive income			26				—				91				—
Interest expense			1,177				1,313				2,392				2,981
Income from continuing operations before income taxes			14,245				21,305				35,236				45,631
Provision for income taxes			5,622				8,256				13,777				17,827
Income from continuing operations			8,623				13,049				21,459				27,804
Loss from discontinued operations, net of taxes			(46	)			(272	)			(107	)			(810	)
Net income		$	8,577			$	12,777			$	21,352			$	26,994
Net income per common share — Basic
Income from continuing operations		$	0.16			$	0.25			$	0.41			$	0.54
Loss from discontinued operations			—				—				—				(0.01	)
Net Income		$	0.16			$	0.25			$	0.41			$	0.53
Net income per common share — Diluted
Income from continuing operations		$	0.16			$	0.25			$	0.41			$	0.54
Loss from discontinued operations			—				—				—				(0.02	)
Net Income		$	0.16			$	0.25			$	0.41			$	0.52
Weighted-average common and common equivalent shares outstanding
Basic			52,007				51,301				51,914				51,206
Diluted			52,719				51,553				52,633				51,511
Dividends declared per common share		$	0.135			$	0.130			$	0.270			$	0.260

See accompanying notes to the condensed consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended
		April 30,
(in thousands)		2010				2009 (Note 1)
		(Unaudited)
Cash flows from operating activities:
Net income		$	21,352			$	26,994
Loss from discontinued operations, net of taxes			(107	)			(810	)
Income from continuing operations			21,459				27,804
Adjustments to reconcile income from continuing operations to net cash provided by continuing operating activities:
Depreciation and amortization of intangible assets			17,044				15,237
Deferred income taxes			5,453				16,266
Share-based compensation expense			3,610				3,412
Provision for bad debt			1,569				1,878
Discount accretion on insurance claims			456				624
Auction rate security credit loss impairment			127				—
Loss (gain) on sale of assets			31				(930	)
Changes in operating assets and liabilities, net of effects of acquisitions
Trade accounts receivable			962				(382	)
Prepaid expenses and other current assets			2,714				(2,932	)
Insurance recoverables			1,400				100
Other assets and long-term receivables			1,591				(2,617	)
Income taxes payable			7,748				(7,306	)
Retirement plans and other non-current liabilities			(1,055	)			(439	)
Insurance claims payable			(1,408	)			(2,607	)
Trade accounts payable and other accrued liabilities			(23,961	)			(3,767	)
Total adjustments			16,281				16,537
Net cash provided by continuing operating activities			37,740				44,341
Net cash provided by discontinued operating activities			6,583				22,861
Net cash provided by operating activities			44,323				67,202
Cash flows from investing activities:
Additions to property, plant and equipment			(12,238	)			(9,680	)
Proceeds from sale of assets			1,087				2,312
Purchase of businesses			(588	)			(746	)
Net cash used in investing activities			(11,739	)			(8,114	)
Cash flows from financing activities:
Proceeds from exercises of stock options (including income tax benefit)			3,045				1,516
Dividends paid			(14,014	)			(13,314	)
Borrowings from line of credit			229,000				343,000
Repayment of borrowings from line of credit			(256,500	)			(391,000	)
Changes in book cash overdrafts			(7,325	)			(5,966	)
Net cash used in financing activities			(45,794	)			(65,764	)
Net decrease in cash and cash equivalents			(13,210	)			(6,676	)
Cash and cash equivalents at beginning of period			34,153				26,741
Cash and cash equivalents at end of period		$	20,943			$	20,065

See accompanying notes to the condensed consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

		Six Months Ended
		April 30,
(in thousands)		2010				2009 (Note 1)
		(Unaudited)
Supplemental Data:
Cash (refunded) paid for income taxes, net of refunds received		$	(75	)		$	8,928
Tax effect from exercise of options			603				(124	)
Cash received from exercise of options			2,442				1,640
Interest paid on line of credit		$	1,803			$	2,843
Non-cash investing activities:
Common stock issued for business acquired		$	—			$	1,198

See accompanying notes to the condensed consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying condensed consolidated financial statements of ABM Industries Incorporated (“ABM”, and together with its subsidiaries, the “Company”) contained in this report are unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission (“SEC”) in ABM’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009. All references to years are to the Company’s fiscal year, which ends on October 31.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in ABM’s condensed consolidated financial statements and the accompanying notes. These estimates are based on information available as of the date of these financial statements. The current economic environment and its potential effect on the Company’s clients have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are normal and recurring, necessary to fairly state the information for each period contained therein. The results of operations for the three and six months ended April 30, 2010 are not necessarily indicative of the operating results that might be expected for the full fiscal year or any future periods.

Immaterial Correction

The presentation of the accompanying condensed consolidated statements of cash flows for the six months ended April 30, 2009, corrects the presentation of cash and cash equivalents and book cash overdrafts related to offsetting of positive and negative book cash balances. The effects of the correction, which had no impact on the Company’s previously reported earnings for any periods, are presented in the following table:

		Six Months Ended
		April 30, 2009
		As Previously				As
(in thousands)		Reported				Corrected
Net cash used in financing activities		$	(59,798	)		$	(65,764	)

2. Recently Adopted Accounting Pronouncements

Effective November 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) updated authoritative standard for accounting for business combinations, which is included in Accounting Standards Codification ^TM (“ASC”) Topic 805 “Business Combinations” (“ASC 805”). Upon adoption, on November 1, 2009, the Company expensed approximately $1.0 million of deferred acquisition costs for acquisitions currently being pursued. This authoritative standard will impact the way in which the Company accounts for future business combinations.

Effective November 1, 2009, the Company adopted the FASB updated authoritative standard for determining the useful life of intangible assets, which is included in ASC Topic 350-30 “General Intangibles Other than Goodwill” (“ASC 350-30”). This authoritative standard amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and requires additional disclosures. The disclosure requirements must be applied prospectively to all intangible assets recognized as of the effective date. This authoritative standard had no impact on the Company’s condensed consolidated interim financial statements, but could impact the way in which the useful lives of intangible assets acquired in a business combination will be determined for future acquisitions, if renewal or extension terms are apparent.

Effective November 1, 2009, the Company adopted the FASB updated authoritative standard on employers’ disclosures about post-retirement benefit plan assets, which is included in ASC Topic 715 “Compensation—Retirement Benefits” (“ASC 715”). The authoritative standard expands the annual disclosures by adding required disclosures about how investment allocation decisions are made by management, major categories of plan assets and significant concentrations of risk. Additionally, it is now required for an employer to disclose information about the valuation of plan assets similar to that required under ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”). This authoritative standard will not have an impact on the Company’s condensed consolidated interim financial statements as it only amends required annual disclosures.

Effective November 1, 2009, the Company adopted the FASB authoritative standard on fair value measurements for non-financial assets and non-financial liabilities measured on a non-recurring basis, which is included in ASC 820. The Company’s non-financial assets and non-financial liabilities principally consist of intangible assets acquired through business combinations and long-lived assets. During the six months ended April 30, 2010, the Company did not re-measure any non-financial assets or non-financial liabilities at fair value, therefore, this authoritative standard did not have an impact on the Company’s condensed consolidated interim financial statements. This authoritative standard will impact the way in which fair value is measured and disclosed for non-financial assets and non-financial liabilities that are measured at fair value on a non-recurring basis in periods subsequent to initial recognition.

Effective February 1, 2010, the Company adopted FASB accounting standard update No. 2010-6, “Improving Disclosures about Fair Value Measurements”, issued in January 2010 related to fair value measurements and disclosures, except for the additional gross presentation disclosure requirements for Level 3 changes which will be adopted in the first quarter of 2012. The update requires entities to make new disclosures about recurring or nonrecurring fair value measurements of assets and liabilities, including (1) the amounts of significant transfers between Level 1 and Level 2 fair value measurements and the reasons for the transfers, (2) the reasons for any transfers in or out of Level 3, and (3) information on purchases, sales, issuances and settlements on a gross basis in the reconciliation of recurring Level 3 fair value measurements. The FASB also clarified existing fair value measurement disclosure guidance about the level of disaggregation of assets and liabilities, and information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The Company did not have transfers of assets and liabilities between Level 1, Level 2 and/or Level 3 and the required additional disclosures had no impact on the Company’s financial position or results of operations. See Note 3, “Fair Value Measurements” and Note 4, “Auction Rate Securities”.

3. Fair Value Measurements

As required by ASC 820, fair value is determined based on inputs or assumptions that market participants would use in pricing an asset or a liability. These assumptions consist of (1) observable inputs — market data obtained from independent sources, or (2) unobservable inputs - market data determined using the company’s own assumptions about valuation. ASC 820 establishes a hierarchy to prioritize the inputs to valuation techniques, with the highest priority being given to Level 1 inputs and the lowest priority to Level 3 inputs, as described below:

Level 1 — Quoted prices for identical instruments in active markets;

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets; and

Level 3 — Unobservable inputs.

The following tables presents the Company’s hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2010 and October 31, 2009:

						Fair Value Measurements
		Fair Value at				Using Inputs Considered as
(in thousands)		April 30, 2010				Level 1				Level 2				Level 3
Assets
Assets held in funded deferred compensation plan		$	5,704			$	5,704			$	—			$	—
Investments in auction rate securities			19,634				—				—				19,634
Total assets		$	25,338			$	5,704			$	—			$	19,634
Liabilities
Interest rate swap		$	802			$	—			$	802			$	—
Total liabilities		$	802			$	—			$	802			$	—

						Fair Value Measurements
		Fair Value at				Using Inputs Considered as
(in thousands)		October 31, 2009				Level 1				Level 2				Level 3
Assets
Assets held in funded deferred compensation plan		$	6,006			$	6,006			$	—			$	—
Investment in auction rate securities			19,531				—				—				19,531
Total assets		$	25,537			$	6,006			$	—			$	19,531
Liabilities
Interest rate swap		$	1,014			$	—			$	1,014			$	—
Total liabilities		$	1,014			$	—			$	1,014			$	—

The fair value of the assets held in the funded deferred compensation plan is based on quoted market prices.

The fair value of the investments in auction rate securities is based on discounted cash flow valuation models, primarily utilizing unobservable inputs. During the six months ended April 30, 2010, the Company had no transfers of assets or liabilities between any of the above hierarchy levels. See Note 4, “Auction Rate Securities”, for the roll-forwards of assets measured at fair value using significant unobservable Level 3 inputs.

The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rates and the expected cash flows at current market interest rates using observable benchmarks for LIBOR forward rates at the end of the period. See Note 7, “Line of Credit Facility”.

Other Financial Assets and Liabilities

Due to the short-term maturities of the Company’s cash, cash equivalents, receivables, payables, and current assets and liabilities of discontinued operations, the carrying value of these financial instruments approximates their fair market values. Due to the variable interest rates, the fair value of outstanding borrowings under the Company’s $450.0 million line of credit approximates its carrying value of $145.0 million. The carrying value of the receivables included in non-current assets of discontinued operations of $2.8 million and the acquired insurance deposits related to acquired self-insurance claims of $42.2 million approximates fair market value.

4. Auction Rate Securities

As of April 30, 2010, the Company held investments in auction rate securities from five different issuers having an original principal amount of $5.0 million each (aggregating $25.0 million). At April 30, 2010 and October 31, 2009, the estimated fair value of these securities, in total, was approximately $19.6 million and $19.5 million, respectively. These auction rate securities are debt instruments with stated maturities ranging from 2025 to 2050, for which the interest rate is designed to be reset through Dutch auctions approximately every 30 days. Auctions for these securities have not occurred since August 2007.

The Company estimates the fair values of auction rate securities it holds utilizing a discounted cash flow model, which considers, among other factors, assumptions about: (1) the underlying collateral; (2) credit risks associated with the issuer; (3) contractual maturity; (4) credit enhancements associated with financial insurance guarantees, if any; and (5) assumptions about when, if ever, the security might be re-financed by the issuer or have a successful auction. Since there can be no assurance that auctions for these securities will be successful in the near future, the Company has classified its auction rate securities as long-term investments.

The following table presents the significant assumptions used to determine the fair value of the Company’s auction rate securities at April 30, 2010 and October 31, 2009:

Assumption		April 30, 2010		October 31, 2009
Discount rates		L + 0.34% - L + 22.17%		L + 0.34% - L + 24.43%
Yields		L + 2.0% - L + 3.5%		L + 2.0% - L + 3.5%
Average expected lives		4 - 10 years		4 - 8 years
L — London Interbank Offered Rate

The Company’s determination of whether impairments of its auction rate securities are other-than-temporary is based on an evaluation of several factors, circumstances and known or reasonably supportable trends including, but not limited to: (1) the Company’s intent to not sell the securities; (2) the Company’s assessment that it is not more likely than not that the Company will be required to sell the securities before recovering its cost basis; (3) expected defaults; (4) available ratings for the securities or the underlying collateral; (5) the rating of the associated guarantor (where applicable); (6) the nature and value of the underlying collateral expected to service the investment; (7) actual historical performance of the security in servicing its obligations; and (8) actuarial experience of the underlying re-insurance arrangement (where applicable) which in certain circumstances may have preferential rights to the underlying collateral.

Based primarily on an unfavorable development in the Company’s assumption about the expected life for one security, for the three months ended at April 30, 2010, the Company recognized an additional other-than-temporary impairment credit loss of $0.1 million. The Company had previously recognized an other-than-temporary impairment credit loss of $1.6 million for this security in 2009. The credit loss was based upon the difference between the present value of the expected cash flows to be collected and the amortized cost basis of the security. Significant assumptions used in estimating the credit loss include: (1) default rates for the security and the mono-line insurer, if any (which were based on published historical default rates of similar securities and consideration of current market trends) and (2) the expected life of the security (which represents the Company’s view of when market efficiencies for securities may be restored). Adverse changes in any of these factors could result in additional declines in fair value and further other-than-temporary impairments in the future.

The following tables presents the changes in the cost basis and fair value of the Company’s auction rate securities for the six months ended April 30, 2010:

						Fair Value
(in thousands)		Cost Basis				(Level 3)
Balance at beginning of year		$	23,434			$	19,531
Unrealized gains			—				201
Unrealized losses			—				(98	)
Other-than-temporary credit loss recognized in earnings			(127	)			—
Balance at April 30, 2010		$	23,307			$	19,634

The other-than-temporary impairment (“OTTI”) related to credit losses recognized in earnings for the six months ended April 30, 2010 is as follows:

Beginning balance of

Ending balance of the

OTTI credit losses

Reductions for

amount related to

recognized for the

Additions for

Additional

increases in

credit losses held at

auction rate security

the amount

increases to the

cash flows

the end of the period

held at the beginning of

related to credit

amount related

expected to be

for which a portion of

the period for which a

loss for which

to credit loss for

collected that are

OTTI was recognized

portion of OTTI was

OTTI was not

which an OTTI

recognized over

in Other

recognized in Other

previously

was previously

the remaining life

Comprehensive

(in thousands)

Comprehensive Income

recognized

recognized

of the security

Income

OTTI credit loss recognized for auction rate security

$

1,566

$

—

$

127

$

—

$

1,693

At April 30, 2010 and October 31, 2009, unrealized losses of $3.7 million ($2.2 million net of tax) and $3.9 million ($2.3 million net of tax) were recorded in accumulated other comprehensive loss, respectively.

5. Net Income per Common Share

Basic net income per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted net income per common share is based on the weighted average number of shares outstanding during the period, adjusted to include the assumed exercise and conversion of certain stock options, restricted stock units and performance shares. The calculation of basic and diluted net income per common share is as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands, except per share data)		2010				2009				2010				2009
Income from continuing operations		$	8,623			$	13,049			$	21,459			$	27,804
Loss from discontinued operations,   net of taxes			(46	)			(272	)			(107	)			(810	)
Net income		$	8,577			$	12,777			$	21,352			$	26,994
Weighted-average common shares outstanding — Basic			52,007				51,301				51,914				51,206
Effect of dilutive securities:
Stock options			432				69				410				132
Restricted stock units			227				155				244				130
Performance shares			53				28				65				43
Weighted-average common shares outstanding — Diluted			52,719				51,553				52,633				51,511
Net income per common share
Basic		$	0.16			$	0.25			$	0.41			$	0.53
Diluted		$	0.16			$	0.25			$	0.41			$	0.52

The diluted net income per common share excludes certain stock options and restricted stock units since the effect of including these stock options and restricted stock units would have been anti-dilutive as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2010				2009				2010				2009
Stock options			803				3,154				824				2,777
Restricted stock units			38				313				30				261

6. Self-Insurance

The Company provided for self-insurance expense during the six months ended April 30, 2010 using actuarial rates established from its most recent actuarial review, which used claims data from 2009, considering known or expected trends. Actuarial evaluations are expected to be performed during the third and fourth quarters of 2010 using claims data as of April 2010 and July 2010, respectively.

At April 30, 2010, the Company had $101.0 million in standby letters of credit (primarily related to its workers’ compensation, general liability, automobile, and property damage programs), $42.2 million in restricted insurance deposits and $110.2 million in surety bonds supporting insurance claim liabilities. At October 31, 2009, the Company had $118.6 million in stand by letters of credit, $42.5 million in restricted insurance deposits and $103.2 million in surety bonds supporting insurance claim liabilities.

7. Line of Credit Facility

The Company holds a $450.0 million five-year syndicated line of credit that is scheduled to expire on November 14, 2012 (the “Facility”). The Facility is available for working capital, the issuance of standby letters of credit, the financing of capital expenditures, and other general corporate purposes.

The Facility includes covenants limiting liens, dispositions, fundamental changes, investments, indebtedness and certain transactions and payments. In addition, the Facility also requires that the Company maintain the following three financial covenants which are described in Note 9, “Line of Credit Facility”, to the Consolidated Financial Statements set forth in the Company’s Annual Report on Form 10-K for 2009: (1) a fixed charge coverage ratio; (2) a leverage ratio; and (3) a combined net worth test. The Company was in compliance with all covenants as of April 30, 2010 and expects to be in compliance in the foreseeable future.

As of April 30, 2010, the total outstanding amount under the Facility in the form of cash borrowings was $145.0 million. Available credit under the line of credit was $204.0 million at April 30, 2010. The Company’s ability to draw down available amounts under its line of credit is subject to compliance with the covenants described above.

As of April 30, 2010, the fair value of the interest rate swap was a $0.8 million liability, which is included in retirement plans and other on the accompanying condensed consolidated balance sheet. No ineffectiveness existed at April 30, 2010. The amount included in accumulated other comprehensive loss is $0.8 million ($0.5 million, net of taxes).

8. Benefit Plans

The components of net periodic benefit cost of the Company’s defined benefit plans and the post-retirement benefit plans, including participants associated with continuing operations, for the three and six months ended April 30, 2010 and 2009, were as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2010				2009				2010				2009
Defined Benefit Plans
Service cost		$	11			$	11			$	22			$	21
Interest			148				203				296				397
Expected loss on plan assets			(100	)			(80	)			(200	)			(160	)
Amortization of actuarial loss			18				31				36				57
Net expense		$	77			$	165			$	154			$	315
Post-Retirement Benefit Plan
Service cost		$	4			$	3			$	8			$	6
Interest			70				69				140				138
Amortization of actuarial gain			—				(51	)			—				(102	)
Net expense		$	74			$	21			$	148			$	42

9. Contingencies

The Company has been named as a defendant in certain proceedings arising in the ordinary course of business. Litigation outcomes are often difficult to predict and often are resolved over long periods of time. Estimating probable losses requires the analysis of multiple possible outcomes that often depend on judgments about potential actions by third parties. Loss contingencies are recorded as liabilities in the accompanying condensed consolidated financial statements when it is both: (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. Legal costs associated with loss contingencies are expensed as incurred.

The Company accrues amounts it believes are adequate to cover any liabilities related to litigation and arbitration proceedings, and other contingencies that the Company believes will result in a probable loss. However, the ultimate resolution of such matters is always uncertain. It is possible that any such proceedings brought against the Company could have a material adverse impact on its financial condition and results of operations. The total amount accrued for probable losses at April 30, 2010 was $9.2 million.

The Company is a defendant in several purported class action lawsuits related to alleged violations of federal or California wage-and-hour laws. The named plaintiffs in these lawsuits are current or former employees of ABM subsidiaries who allege, among other things, that they were required to work “off the clock,” were not paid for all overtime, were not provided work breaks or other benefits, and/or that they received pay stubs not conforming to California law. In all cases, the plaintiffs generally seek unspecified monetary damages, injunctive relief or both.

The Company is a defendant in a lawsuit filed July 19, 2007 in the United States District Court, Eastern District of California, entitled U.S. Equal Employment Opportunity Commission, Plaintiff Erika Morales and Anonymous Plaintiffs One through Eight v. ABM Industries Incorporated et. al. (the “Morales case”). The plaintiffs in the Morales case allege sexual harassment, discrimination and retaliation. In 2009, fourteen claimants joined the lawsuit alleging various claims against the Company. The case involves both Title VII federal law claims and California state law claims. Title VII damages are limited to $300,000 per claimant; California state law claims do not contain such limitations and can include punitive damages as well. The Company has several motions pending relating to this matter. Since the Company believes that the allegations asserted by the claimants who joined the Morales case in 2009 are not related to those underlying the originally filed lawsuit, the Company has moved to separate these claims into two lawsuits. This motion was heard on May 28, 2010. The court has not ruled on this motion to date. In addition, motions to dismiss many of the claims on procedural and substantive grounds are scheduled to be heard by the court on June 17, 2010. The Morales case is currently scheduled for trial in August 2010. The Company intends to continue to vigorously defend itself. The Company has accrued its best estimate of the probable liability. There can be no assurance that any judgment or settlement relating to the Morales case will not be material to the Company.

10. Share-Based Compensation Plans

On January 11, 2010, the Company’s Compensation Committee approved the grant of 256,637 performance share awards under the terms of the Company’s 2006 Equity Incentive Plan, as amended and restated. The fair value of the performance share awards granted and valued as of January 28, 2010 was approximately $5.0 million and these awards vest over a period of three years.

On March 31, 2010 the Company’s Compensation Committee approved the following grants: 262,344 stock options and 80,185 restricted stock units, each under the terms of the Company’s 2006 Equity Incentive Plan, as amended and restated. The fair value of the awards granted on March 31, 2010 was approximately $3.4 million and these awards vest 100% on the fifth anniversary of the grant date. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option valuation model. The fair value of stock options granted was $6.41 per share. The assumptions used in the option valuation model for the stock options granted on March 31, 2010 were: (1) expected life from date of grant of 5.6 years; (2) expected stock price volatility of 38.52%; (3) expected dividend yield of 2.66% and (4) a risk-free interest rate of 2.62%. The fair value of the restricted stock units granted was determined using the closing stock price on the date of grant.

11. Comprehensive Income

The following table presents the components of comprehensive income, net of taxes for the three months ended April 30, 2010 and 2009:

		Three Months Ended
		April 30,
(in thousands)		2010				2009
Net income		$	8,577			$	12,777
Other comprehensive income (loss):
Unrealized (losses) gains on auction rate securities, net of taxes of $7 and $244 for April 30, 2010 and 2009, respectively			(10	)			377
Reclass adjustment for credit losses recognized in earnings, net of taxes of $51 for April 30, 2010			76				—
Unrealized gain (loss) on interest rate swap agreement, net of taxes of $106 and $302 for April 30, 2010 and 2009, respectively			155				(466	)
Foreign currency translation, net of taxes of $197 and $92 for April 30, 2010 and 2009, respectively			288				142
Actuarial gain (loss) — adjustments to pension & other post-retirement plans, net of taxes of $7 and $8 for April 30, 2010 and 2009, respectively			11				(12	)
Comprehensive income		$	9,097			$	12,818

The following table presents the components of comprehensive income, net of taxes for the six months ended April 30, 2010 and 2009:

		Six Months Ended
		April 30,
(in thousands)		2010				2009
Net income		$	21,352			$	26,994
Other comprehensive income (loss):
Unrealized gains on auction rate securities, net of taxes of $42 and $189 for April 30, 2010 and 2009, respectively			61				292
Reclass adjustment for credit losses recognized in earnings, net of taxes of $51 for April 30, 2010			76				—
Unrealized gain (loss) on interest rate swap agreement, net of taxes of $86 and $302 for April 30, 2010 and 2009, respectively			126				(466	)
Foreign currency translation, net of taxes of $211 and $44 for April 30, 2010 and 2009, respectively			306				68
Actuarial gain (loss) — adjustments to pension & other post-retirement plans, net of taxes of $14 and $17 for April 30, 2010 and 2009, respectively			22				(26	)
Comprehensive income		$	21,943			$	26,862

12. Income Taxes

At April 30, 2010, the Company had unrecognized tax benefits of $102.5 million, all of which, if recognized in the future, would affect its effective tax rate. The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of April 30, 2010, the Company had accrued interest related to uncertain tax positions of $0.8 million. The Company has recorded $2.1 million of the unrecognized tax benefits as a current liability.

The effective tax rate on income from continuing operations for the three months ended April 30, 2010 and 2009 were 39.5% and 38.8%, respectively. The effective tax rate on income from continuing operations for the six months ended April 30, 2010 and 2009 was 39.1%.

The Company’s major tax jurisdiction is the United States. ABM and OneSource Services, Inc. U.S. federal income tax returns remain open for examination for the periods ending October 31, 2006 through October 31, 2009 and March 31, 2000 through November 14, 2007, respectively. ABM has been notified by the Internal Revenue Service that tax years 2006-2008 will be examined beginning in the third quarter of 2010. The Company does business in all 50 states, significantly in California, Texas and New York, as well as Puerto Rico and Canada. In major state jurisdictions, the tax years 2005-2009 remain open and subject to examination by the appropriate tax authorities. The Company is currently being examined by Illinois, Minnesota, Arizona, Utah, New Jersey, Massachusetts, and Puerto Rico. The Company does not believe that the examinations by the Internal Revenue Service or the state tax authorities will have a significant impact on its results of operations.

13. Segment Information

The Company is organized into four reportable operating segments, Janitorial, Parking, Security and Engineering, which are summarized as follows:

		Three Months Ended								Six Months Ended
		April 30,								April 30,
(in thousands)		2010				2009				2010				2009
Revenues
Janitorial		$	574,046			$	589,344			$	1,158,125			$	1,197,764
Parking			114,003				113,347				226,591				229,016
Security			80,712				82,403				164,309				167,986
Engineering			86,190				70,194				175,541				147,410
Corporate			510				423				779				1,007
		$	855,461			$	855,711			$	1,725,345			$	1,743,183
Operating profit
Janitorial		$	29,025			$	34,894			$	63,109			$	67,205
Parking			5,184				4,859				10,210				9,001
Security			941				1,397				2,287				3,191
Engineering			4,856				4,038				9,848				8,704
Corporate			(24,457	)			(22,570	)			(47,699	)			(39,489	)
Operating profit			15,549				22,618				37,755				48,612
Other-than-temporary impairment losses on auction rate security:
Gross impairment losses			101				—				36				—
Impairments recognized in other comprehensive income			26				—				91				—
Interest expense			1,177				1,313				2,392				2,981
Income from continuing operations before income taxes		$	14,245			$	21,305			$	35,236			$	45,631

Most Corporate expenses are not allocated. Such expenses include the adjustments to the Company’s self-insurance reserves relating to prior years, certain legal costs and settlements, certain information technology costs, share-based compensation costs, severance costs associated with acquisitions and certain chief executive officer, and other finance and human resource departmental costs. Corporate expenses for the six months ended April 30, 2009 included the net benefit of a $9.6 million legal settlement related to a claim that was settled and resolved in the three months ended January 31, 2009.

14. Discontinued Operations

On October 31, 2008, the Company completed the sale of substantially all of the assets of its former Lighting segment, excluding accounts receivable and certain other assets and liabilities, to Sylvania Lighting Services Corp (“Sylvania”). The remaining assets and liabilities associated with the Lighting segment have been classified as assets and liabilities of discontinued operations for all periods presented. The results of operations of the Lighting segment for all periods presented are classified as “Loss from discontinued operations, net of taxes.”

The carrying amounts of the major classes of assets and liabilities of the Lighting segment included in discontinued operations are as follows:

		April 30,				October 31,
(in thousands)		2010				2009
Trade accounts receivable, net		$	155			$	499
Notes receivable and other			1,216				1,937
Other receivables due from Sylvania (a)			4,638				8,351
Current assets of discontinued operations			6,009				10,787
Long-term notes receivable			580				976
Other receivables due from Sylvania (a)			2,212				3,591
Non-current assets of discontinued operations			2,792				4,567
Trade accounts payable			755				840
Accrued liabilities			47				53
Due to Sylvania, net (b)			468				172
Current liabilities of discontinued operations		$	1,270			$	1,065

15. Parking Revenue Presentation

The Company’s Parking segment reports both revenues and expenses, in equal amounts, for costs directly reimbursed from its managed parking lot clients. Parking revenues related solely to the reimbursement of expenses totaled $57.2 million and $57.3 million for the three months ended April 30, 2010 and 2009, respectively, and $113.2 million and $117.8 million for the six months ended April 30, 2010 and 2009, respectively.

        

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

The following discussion should be read in conjunction with the unaudited accompanying condensed consolidated financial statements of ABM Industries Incorporated (“ABM”, and together with its subsidiaries, the “Company”) included in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2009. All information in the discussion and references to years are based on the Company’s fiscal year, which ends on October 31.

Overview

The Company provides janitorial, parking, security and engineering services for thousands of commercial, industrial, institutional and retail client facilities in hundreds of cities, primarily throughout the United States. The Company’s business is impacted by, among other things, commercial office building occupancy and rental rates, industrial activity, air travel levels, tourism and transportation needs at colleges, universities and health care service facilities. Revenues at the Company’s Janitorial, Security and Engineering segments are primarily based on the performance of labor-intensive services at contractually specified prices. Revenues at the Parking segment relate to parking and transportation services, which are less labor-intensive. In addition to services defined within the scope of client contracts, the Janitorial segment also generates revenues from extra services (or tags) such as, but not limited to, flood cleanup services and snow removal, which generally provide higher margins.

During 2009, the Company experienced losses of client contracts that exceeded new business, reductions in the level and scope of client services, contract price compression and declines in the level of tag work, primarily in the Janitorial segment. These losses and reductions continued to influence results in the six months ended April 30, 2010. Total revenues in the six months ended April 30, 2010, as compared to the six months ended April 30, 2009, decreased $17.8 million, or 1.0%, primarily related to the losses and reductions experienced during 2009 and some reductions in the level and scope of client services and contract price compression in the six months ended April 30, 2010 in the Janitorial segment, partially offset by additional revenues from new clients and the expansion of services to existing clients in the Engineering segment. The Company’s operating profit, excluding Corporate, decreased $2.6 million, or 3.0%, in the six months ended April 30, 2010 compared to the six months ended April 30, 2009, primarily related to an increase in labor expenses resulting from one additional working day in the six months ended April 30, 2010 and increases in payroll related costs due to increases in state unemployment insurance rates that went into effect on January 1, 2010, which were partially offset by cost control measures. The second half of 2010 will benefit from one less working day, as compared to the second half of 2009.

In addition to revenues and operating profit, the Company’s management views operating cash flows as a good indicator of financial performance, as strong operating cash flows provide opportunities for growth both organically and through acquisitions. Operating cash flows primarily depend on revenue levels, the timing of collections and payments to suppliers and other vendors, the quality of receivables, and the timing and amount of self-insured claims. The Company’s cash flows provided by continuing operating activities was $37.7 million for the six months ended April 30, 2010.

The Company believes that achieving desired levels of revenues and profitability in the future will depend upon, among other things, its ability to attract and retain clients at desirable profit margins, to pass on cost increases to clients, and to keep overall costs low. In the short term, the Company plans to remain competitive by, among other things, continued cost control strategies. The Company is continuing to monitor, and in some cases exit, client arrangements where the Company believes the client is at high risk of bankruptcy or which produce low profit margins and focus on client arrangements that may generate less revenues but produce higher profit margins. Additionally, the Company is exploring acquisitions, both domestically and internationally. In the long-term, the Company expects to continue to grow organically and through acquisitions (including international expansion) in response to the perceived growing demand for a global integrated facility services solution provider.

Liquidity and Capital Resources

		April 30,				October 31,
(in thousands)		2010				2009				Change
Cash and cash equivalents		$	20,943			$	34,153			$	(13,210	)
Working capital		$	285,513			$	278,303			$	7,210

		Six Months Ended April 30,
(in thousands)		2010				2009				Change
Net cash provided by operating activities		$	44,323			$	67,202			$	(22,879	)
Net cash used in investing activities		$	(11,739	)		$	(8,114	)		$	(3,625	)
Net cash used in financing activities		$	(45,794	)		$	(65,764	)		$	19,970

As of April 30, 2010, the Company’s cash and cash equivalents balance was $20.9 million, compared to $34.2 million as of October 31, 2009. The decrease in cash is principally due to the timing of net borrowings under the Company’s line of credit, payments made on vendor invoices and collections of accounts receivable.

The Company believes that the cash generated from operations and amounts available under its $450.0 million line of credit will be sufficient to meet the Company’s cash requirements for the long-term, except to the extent cash is required for significant acquisitions, if any. As of April 30, 2010, the total outstanding amounts under the Company’s line of credit in the form of cash borrowings and standby letters of credit were $145.0 million and $101.0 million, respectively. Available credit under the line of credit was $204.0 million as of April 30, 2010. The Company’s ability to draw down available amounts under its $450.0 million line of credit is subject to compliance with certain financial covenants, including covenants relating to consolidated net worth, a fixed charge coverage ratio and a leverage ratio. In addition, other covenants under the line of credit include limitations on liens, dispositions, fundamental changes, investments and certain transactions and payments. As of April 30, 2010, the Company was in compliance with all covenants and expects to be in the foreseeable future.

Working Capital. Working capital increased by $7.2 million to $285.5 million at April 30, 2010 from $278.3 million at October 31, 2009. Excluding the effects of discontinued operations, working capital increased by $12.2 million to $280.8 million at April 30, 2010 from $268.6 million at October 31, 2009.

The increase was primarily related to:

•

a $35.5 million decrease in trade accounts payable and accrued liabilities, primarily related to the timing of payments made on vendor invoices;

partially offset by:

•

a $13.2 million decrease in cash and cash equivalents;

•

a $4.4 million increase for a litigation contingency recorded in other accrued liabilities;

•

a $3.2 million decrease in notes receivable and other, primarily related to collections received during the six months ended April 30, 2010; and

•

a $2.5 million decrease in trade accounts receivable, net, primarily related to the timing of collections received from clients.

Cash Flows from Operating Activities. Net cash provided by operating activities was $44.3 million for the six months ended April 30, 2010, compared to $67.2 million for the six months ended April 30, 2009.

The decrease in cash flows from operating activities was primarily related to:

•

a $24.6 million period-over-period decrease in trade accounts payable and accrued liabilities, primarily related to the timing of payments made on vendor invoices; and

•

a $16.3 million decrease in net cash provided by discontinued operating activities;

partially offset by:

•

a $15.1 million period-over-period increase in income taxes payable, primarily related to the timing of income tax payments and the utilization of deferred tax assets, including OneSource Services, Inc. deferred tax assets; and

•

a $4.4 million increase for a litigation contingency recorded in other accrued liabilities.

Net cash provided by discontinued operating activities was $6.6 million for the six months ended April 30, 2010, compared to $22.9 million for the six months ended April 30, 2009. The cash provided by discontinued operating activities for the six months ended April 30, 2010 primarily related to cash collections from the transferred client contracts that contained deferred charges related to services performed by the Company prior to the sale.

Cash Flows from Investing Activities. Net cash used in investing activities for the six months ended April 30, 2010 was $11.7 million, compared to $8.1 million for the six months ended April 30, 2009. The increase in cash used in investing activities was primarily related to an increase in capital expenditure purchases of $2.6 million during the six months ended April 30, 2010.

Cash Flows from Financing Activities. Net cash used in financing activities was $45.8 million for the six months ended April 30, 2010, compared to $65.8 million for the six months ended April 30, 2009. The decrease in cash used in financing activities was primarily related to a $20.5 million period-over-period decrease in net repayments from the Company’s line of credit.

Results of Operations

Three Months Ended April 30, 2010 vs. Three Months Ended April 30, 2009

		Three Months				Three Months				Increase				Increase
		Ended				Ended				(Decrease)				(Decrease)
($ in thousands)		April 30, 2010				April 30, 2009				$				%
Revenues		$	855,461			$	855,711			$	(250	)		NM		*
Expenses
Operating			771,974				766,148				5,826				0.8	%
Selling, general and administrative			65,244				64,265				979				1.5	%
Amortization of intangible assets			2,694				2,680				14				0.5	%
Total expense			839,912				833,093				6,819				0.8	%
Operating profit			15,549				22,618				(7,069	)			(31.3	)%
Other-than-temporary impairment losses on auction rate security:
Gross impairment losses			101				—				101			NM		*
Impairments recognized in other comprehensive income			26				—				26			NM		*
Interest expense			1,177				1,313				(136	)			(10.4	)%
Income from continuing operations before income taxes			14,245				21,305				(7,060	)			(33.1	)%
Provision for income taxes			5,622				8,256				(2,634	)			(31.9	)%
Income from continuing operations			8,623				13,049				(4,426	)			(33.9	)%
Loss from discontinued operations, net of taxes			(46	)			(272	)			226			NM		*
Net income		$	8,577			$	12,777			$	(4,200	)			(32.9	)%

Net Income. Net income in the three months ended April 30, 2010 decreased by $4.2 million, or 32.9%, to $8.6 million ($0.16 per diluted share) from $12.8 million ($0.25 per diluted share) in the three months ended April 30, 2009.

Income from Continuing Operations. Income from continuing operations in the three months ended April 30, 2010 decreased by $4.4 million, or 33.9%, to $8.6 million ($0.16 per diluted share) from $13.0 million ($0.25 per diluted share) in the three months ended April 30, 2009.

The decrease in income from continuing operations was primarily related to:

•

a $5.2 million decrease in operating profit, excluding the Corporate segment, primarily related to an increase in labor expenses resulting from one additional working day in the three months ended April 30, 2010 and increases in payroll related costs from increases in state unemployment insurance rates that went into effect on January 1, 2010; and

•

a $4.4 million increase in a litigation contingency;

partially offset by:

•

a $2.8 million year-over-year decrease in information technology costs, net of higher depreciation costs, primarily related to the upgrade of the payroll, human resources and accounting systems in 2009; and

•

a $2.6 million decrease in income taxes, primarily related to the decrease in income from continuing operations before income taxes.

Revenues. Total revenues in the three months ended April 30, 2010 remained relatively flat, as compared to the three months ended April 30, 2009.

Operating Expenses. As a percentage of revenues, gross margin was 9.8% and 10.5% in the three months ended April 30, 2010 and 2009, respectively. The decrease in gross margin percentage was primarily related to an increase in labor expenses resulting from one additional working day in the three months ended April 30, 2010 and increases in payroll related costs from increases in state unemployment insurance rates that went into effect on January 1, 2010.

Selling General and Administrative Expenses. Selling, general and administrative expenses increased $1.0 million, or 1.5%, in the three months ended April 30, 2010 compared to the three months ended April 30, 2009.

The increase in selling, general and administrative expenses was primarily related to:

•

a $4.4 million increase in a litigation contingency;

partially offset by:

•

a $2.8 million year-over-year decrease in information technology costs, net of higher depreciation costs, primarily related to the upgrade of the payroll, human resources and accounting systems in 2009; and

•

a $1.3 million decrease in selling, general and administrative costs at the Janitorial segment, primarily related to cost control measures.

Interest Expense. Interest expense in the three months ended April 30, 2010 decreased $0.1 million, or 10.4%, to $1.2 million from $1.3 million in the three months ended April 30, 2009. The decrease was primarily related to a lower average outstanding balance and a lower average interest rate under the line of credit in the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The average outstanding balance under the Company’s line of credit was $164.9 million and $217.0 million during the three months ended April 30, 2010 and 2009, respectively.

Segment Information. The revenues and operating profits for the Company’s reportable segments (Janitorial, Parking, Security, and Engineering) were as follows:

		Three Months				Three Months				Increase				Increase
		Ended				Ended				(Decrease)				(Decrease)
($ in thousands)		April 30, 2010				April 30, 2009				$				%
Revenues
Janitorial		$	574,046			$	589,344			$	(15,298	)			(2.6	)%
Parking			114,003				113,347				656				0.6	%
Security			80,712				82,403				(1,691	)			(2.1	)%
Engineering			86,190				70,194				15,996				22.8	%
Corporate			510				423				87				20.6	%
		$	855,461			$	855,711			$	(250	)		NM		*
Operating profit
Janitorial		$	29,025			$	34,894			$	(5,869	)			(16.8	)%
Parking			5,184				4,859				325				6.7	%
Security			941				1,397				(456	)			(32.6	)%
Engineering			4,856				4,038				818				20.3	%
Corporate			(24,457	)			(22,570	)			(1,887	)			(8.4	)%
Operating profit			15,549				22,618				(7,069	)			(31.3	)%
Other-than-temporary impairment losses on auction rate security:
Gross impairment losses			101				—				101			NM		*
Impairments recognized in other comprehensive income			26				—				26			NM		*
Interest expense			1,177				1,313				(136	)			(10.4	)%
Income from continuing operations before income taxes		$	14,245			$	21,305			$	(7,060	)			(33.1	)%

Janitorial. Janitorial revenues decreased $15.3 million, or 2.6%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. During 2009, Janitorial experienced losses of client contracts that exceeded new business, reductions in the level and scope of client services, contract price compression and declines in the level of tag work, which continued to influence results in the three months ended April 30, 2010. In addition, during the six months ended April 30, 2010, Janitorial continued to experience some reductions in the level and scope of client services and contract price compression as a result of decreases in client discretionary spending.

Operating profit decreased $5.9 million, or 16.8%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The decrease was primarily related to the reduction in revenues, an increase in labor expenses resulting from one additional working day in the three months ended April 30, 2010 and increases in payroll related costs from increases in state unemployment insurance rates that went into effect on January 1, 2010, partially offset by cost control measures.

Parking. Parking revenues increased $0.7 million, or 0.6%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The increase was primarily related to additional revenues from new clients and the expansion of services to existing clients.

Operating profit increased $0.3 million, or 6.7%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The increase was primarily related to cost control measures and the increase in revenues.

Security. Security revenues decreased $1.7 million, or 2.1%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The decrease in revenues was primarily related to reductions in the level and scope of client services and contract price compression as a result of decreases in client discretionary spending, partially offset by additional revenues from new clients in the three months ended April 30, 2010.

Operating profit decreased $0.5 million, or 32.6%, in the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The decrease was primarily related to the decrease in revenues, principally those with high gross profit margins, and increases in payroll related costs from increases in state unemployment insurance rates that went into effect on January 1, 2010.

Engineering. Engineering revenues increased $16.0 million, or 22.8%, during the three months ended April 30, 2010 compared to the three months ended April 30, 2009. The increase was primarily related to additional revenues from new clients and the expansion of services to existing clients.

Operating profit increased by $0.8 million, or 20.3%, in the three months ended April 30, 2010 compared to the three months ended April 30, 2009, primarily related to the increase in revenues.

Corporate. Corporate expense increased $1.9 million, or 8.4%, in the three months ended April 30, 2010 compared to the three months ended April 30, 2009.

The increase in Corporate expense was primarily related to:

•

a $4.4 million increase in a litigation contingency;

partially offset by:

•

a $2.8 million year-over-year decrease in information technology costs, net of higher depreciation costs, primarily related to the upgrade of the payroll, human resources and accounting systems in 2009.

Results of Operations

Six Months Ended April 30, 2010 vs. Six Months Ended April 30, 2009

		Six Months				Six Months				Increase				Increase
		Ended				Ended				(Decrease)				(Decrease)
($ in thousands)		April 30, 2010				April 30, 2009				$				%
Revenues		$	1,725,345			$	1,743,183			$	(17,838	)			(1.0	)%
Expenses
Operating			1,554,075				1,553,416				659			NM		*
Selling, general and administrative			128,046				135,652				(7,606	)			(5.6	)%
Amortization of intangible assets			5,469				5,503				(34	)			(0.6	)%
Total expense			1,687,590				1,694,571				(6,981	)			(0.4	)%
Operating profit			37,755				48,612				(10,857	)			(22.3	)%
Other-than-temporary impairment losses on auction rate security:
Gross impairment losses			36				—				36			NM		*
Impairments recognized in other comprehensive income			91				—				91			NM		*
Interest expense			2,392				2,981				(589	)			(19.8	)%
Income from continuing operations before income taxes			35,236				45,631				(10,395	)			(22.8	)%
Provision for income taxes			13,777				17,827				(4,050	)			(22.7	)%
Income from continuing operations			21,459				27,804				(6,345	)			(22.8	)%
Loss from discontinued operations, net of taxes			(107	)			(810	)			703			NM		*
Net income		$	21,352			$	26,994			$	(5,642	)			(20.9	)%