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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For The Fiscal Year Ended October 31,
2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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For The Transition Period
From
to
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Commission File Number: 1-8929
ABM INDUSTRIES
INCORPORATED
(Exact name of registrant as
specified in its charter)
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Delaware
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94-1369354
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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551 Fifth Avenue,
Suite 300, New York, New York
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10176
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(Address of principal executive
offices)
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(Zip Code)
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212/297-0200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to the filing requirements for 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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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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
As of April 30, 2010 (the last business day of
registrants most recently completed second fiscal
quarter), non-affiliates of the registrant beneficially owned
shares of the registrants common stock with an aggregate
market value of $1,100,912,951 computed by reference to the
price at which the common stock was last sold.
Number of shares of common stock outstanding as of
December 10, 2010: 52,659,190.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used by the Company in
connection with its 2011 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual
Report on
Form 10-K.
ABM Industries
Incorporated
Form 10-K
For the Fiscal Year Ended October 31, 2010
TABLE OF CONTENTS
PART I
Introduction
ABM Industries Incorporated (ABM), through its
subsidiaries (collectively, the Company), is a
leading provider of facility services in the United States. With
2010 revenues of approximately $3.5 billion, the Company
provides janitorial, parking, security and engineering services
for thousands of commercial, industrial, institutional,
governmental and retail client facilities in hundreds of cities,
primarily throughout the United States. The Company
employed approximately 96,000 employees at October 31,
2010, the vast majority of whom are service employees.
The Company was reincorporated in Delaware on March 19,
1985, as the successor to a business founded in California in
1909. The Companys corporate headquarters are located at
551 Fifth Avenue, Suite 300, New York, New York 10176.
The telephone number is
(212) 297-0200.
The Companys website is www.abm.com. Through the
SEC Filings link on the Investor Relations section
of the Companys website, the following filings and
amendments to those filings are made available free of charge,
as soon as reasonably practicable after they are electronically
filed with or furnished to the SEC: (1) Annual Reports on
Form 10-K,
(2) Quarterly Reports on
Form 10-Q,
(3) Current Reports on
Form 8-K,
(4) Proxy Statements, and (5) filings by the
Companys directors and executive officers under
Section 16(a) of the Securities Exchange Act of 1934. The
Companys Corporate Governance Guidelines, Code of Business
Conduct and the charters of its Audit, Compensation and
Governance Committees are available through the
Governance link on the Investor Relations section of
the Companys website and are also available in print, free
of charge, to those who request them. Information contained on
the Companys website shall not be deemed incorporated
into, or to be a part of, this Annual Report on
Form 10-K.
Acquisitions
On December 1, 2010, the Company acquired The Linc Group,
LLC (Linc) pursuant to an Agreement and Plan of
Merger, dated as of December 1, 2010 (the Merger
Agreement), by and among ABM, Linc, GI Manager LP, as
the Members Representative, and Lightning Services, LLC, a
wholly-owned subsidiary of ABM (Merger Sub).
Pursuant to the Merger Agreement, Merger Sub merged with and
into Linc, and Linc continued as the surviving corporation and
as a wholly owned subsidiary of ABM. The aggregate purchase
price for all of the outstanding limited liability company
interests of Linc was approximately $301.0 million, subject
to certain adjustments as set forth in the Merger Agreement.
With annual revenues of approximately $579 million and
approximately 3,000 employees, Linc provides
end-to-end
integrated facilities management services that improve operating
efficiencies, reduce energy consumption and lower overall
operational costs for more than 25,000 facilities in the
government, commercial and residential markets throughout the
United States and select international markets. The operations
of Linc will be included in the Engineering segment as of the
acquisition date. Except where specifically indicated, the
information contained in the Annual Report on
Form 10-K
does not include information related to Linc.
On October 1, 2010, the Company acquired select assets of
Five Star Parking, Network Parking Company Ltd., and System
Parking, Inc. (L&R) from the L&R Group of
Companies for an aggregate purchase price of $34.7 million,
including $0.2 million of assets distributed as
consideration. The Company incurred $0.4 million of direct
acquisition costs, which were expensed as incurred. L&R
employs approximately 2,500 people and services more than
450 client accounts across the United States. The acquisition
extends and expands the Companys parking business in major
cities. The acquisition also expands the Companys presence
at airports. The results of operations of L&R are included
in the Companys Parking segment as of the acquisition
date. The amounts of L&R revenues and operating profit
included in the Companys consolidated statements of income
for fiscal year 2010 were $14.9 million and
$0.4 million, respectively.
On June 30, 2010, the Company acquired all of the
outstanding shares of Diversco, Inc. (Diversco) from
DHI Holdings, Inc. for $30.6 million in cash and incurred
direct acquisition costs of $0.2 million, which were
expensed as incurred. The purchase price was subsequently
adjusted to $30.4 million in connection with a working
capital adjustment. Diversco is a national provider of
outsourced facility services. The acquisition expands the
geographic reach of the Companys janitorial and security
businesses, particularly in the Southeast, Midwest and
Mid-Atlantic regions of the United States. The results of
operations of Diversco are included in the Companys
Janitorial and Security segments as of the acquisition date. The
amounts of Diverscos revenues and operating profit
included in the Companys consolidated statements of income
for fiscal year 2010 were $28.1 million and
$1.2 million, respectively.
3
Segment
Information
The Company conducts business through a number of subsidiaries
that are grouped into four segments based on the nature of their
business operations. At October 31, 2010, the four
reportable operating segments were:
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Janitorial
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Parking
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Security
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Engineering
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The business activities of the Company by reportable operating
segment are more fully described below.
n Janitorial. Certain
of the Companys subsidiaries provide a wide range of
essential janitorial services for clients, primarily throughout
the United States, in a variety of facilities, including
commercial office buildings, industrial buildings, retail
stores, shopping centers, warehouses, airport terminals, health
facilities, educational institutions, stadiums and arenas, and
government buildings. These services include floor cleaning and
finishing, window washing, furniture polishing, carpet cleaning
and dusting, and other building cleaning services. The
Companys Janitorial subsidiaries operate in all
50 states under thousands of individually negotiated
building maintenance contracts, most of which are obtained by
competitive bidding. These arrangements include fixed
price agreements, cost-plus agreements and
tag (extra service) work. Fixed price arrangements
are contracts in which the client agrees to pay a fixed fee
every month over a specified contract term. A variation of a
fixed price arrangement is a square-foot arrangement, under
which monthly billings are fixed based on the actual square
footage serviced. Cost-plus arrangements are agreements in which
the clients reimburse the Company for the
agreed-upon
amount of wages and benefits, payroll taxes, insurance charges
and other expenses associated with the contracted work, plus a
profit percentage. Tag work generally represents supplemental
services requested by clients outside of the standard contract
terms. Examples are cleanup after tenant moves, construction
cleanup and snow removal. Tag work generally produces higher
margins. Profit margins on contracts tend to be inversely
proportional to the size of the contract, as large-scale
contracts tend to be more competitively priced than small or
standalone agreements. The majority of the Janitorial
segments contracts are for one to three year periods and
contain automatic renewal clauses, but are subject to
termination by either party after 30 to 90 days
written notice.
n Parking. Certain
of the Companys subsidiaries provide parking and
transportation services in 38 states and the District of
Columbia through 32 offices. The Company operates parking lots
and garages at many facilities, including office buildings,
hotels, medical centers, retail centers, sports and
entertainment arenas, educational institutions, municipalities,
and airports. Nearly all contracts are obtained by competitive
bidding. There are three types of arrangements for parking
services: managed locations, leased locations, and allowance
locations. Under the managed arrangements, the Company manages
the underlying parking facility for the owner in exchange for a
management fee. Contract terms for managed arrangements are
generally from one to three years, can usually be terminated
upon 30 days notice and may also contain renewal
clauses. The Company passes through revenues and expenses from
managed locations to the facility owner under the terms and
conditions of the contract. Under leased location arrangements,
the Company leases parking facilities from the owner and is
responsible for a majority of the operating expenses incurred.
Under these arrangements, the Company retains all revenues from
monthly and transient parkers and pays rent to the owner per the
terms and conditions of the lease. The lease terms generally
range from one to five years and provide for payment of a fixed
amount of rent plus a percentage of revenues. The leases usually
contain renewal options and may be terminated by the owner for
various reasons, including development of the real estate.
Leases that expire may continue on a
month-to-month
basis. Under allowance arrangements, the Company is paid a fixed
or hourly fee to provide parking services and is then
responsible for the
agreed-upon
operating expenses based upon the agreement terms. Allowance
contract terms are generally from one to three years, can
usually be terminated upon 30 days notice and may
also contain renewal clauses. The Company continues to improve
parking operations through the increased use of technology,
including: enhancements to the proprietary revenue control
software,
SCORE4;
implementation of the Companys client access software,
ABM4WD.com; and on-line payment software.
n Security. Certain
of the Companys subsidiaries provide security services to
a wide range of businesses. The Companys Security
subsidiaries operate in 37 states and the District of
Columbia through 48 offices. Security services include:
staffing of security officers, mobile patrol services, and
investigative services; electronic monitoring of fire, life
safety systems and access control devices; and security
consulting services. Clients
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served include Class A high rise, commercial,
industrial, retail, medical, petro-chemical, and residential
facilities. Security Staffing, or Guarding, is the
provision of dedicated security officers to a client facility.
This component is the core of the security business and
represents the largest portion of its revenues. Mobile patrol is
the use of roving security officers in vehicles that serve
multiple locations and clients across a pre-defined geographic
area. Investigative services includes white collar crime
investigation, undercover operations and background screening
services. Electronic monitoring is primarily achieved through
the subsidiarys partnership with a major systems
integrator. The revenues for Security are generally based on
actual hours of service at contractually specified rates. In
some cases, flat monthly billing or single rate billing is used,
especially in the case of mobile patrol and investigative
services. The majority of Security contracts are for one year
periods and generally contain automatic renewal clauses, but are
subject to termination by either party after 30 to
90 days written notice. Nearly all Security contracts
are obtained by competitive bidding. The Company has benefited
from the implementation of
AuditMatic®
reporting and incident tracking software and various technology
offerings, and was awarded SAFETY Act Certification from The
U.S. Department of Homeland Security in 2008.
n Engineering. Certain
of the Companys subsidiaries provide client facilities
with on-site
engineers to operate and maintain mechanical, electrical and
plumbing systems utilizing, in part, computerized maintenance
management systems. The Companys Engineering subsidiaries
operate in 36 states and the District of Columbia through 9
branches and maintain national ISO 9000 Certification
(ISO). ISO is a family of standards for quality
management comprising a rigorous set of guidelines and good
business practices against which companies are evaluated through
a comprehensive independent audit process. Certain of the
Companys Engineering services are designed to maintain
equipment at optimal efficiency for client locations, including
high-rise office buildings, schools, computer centers, shopping
malls, manufacturing facilities, museums and universities. The
Companys Engineering services also provide clients with
streamlined, centralized control and coordination of multiple
facility service needs. This approach offers the efficiencies,
service and cost benefits expected in the highly-competitive
market for outsourced business services. By leveraging the core
competencies of other service offerings, the Company attempts to
reduce overhead (such as redundant personnel) for the
Companys clients by providing multiple services under a
single contract, with one contact and one invoice. The
Companys National Service Call Center provides centralized
dispatching, emergency services, accounting and related reports
to financial institutions, high-tech companies and other clients
regardless of industry or size. The Companys Engineering
services also include energy management services that provide
comprehensive, cost-efficient solutions to help curb rising
utility costs within a facility, reduce energy consumption, and
minimize the carbon footprint of a facility. Investments made by
clients in energy efficiency solutions are typically recouped
through reduced energy costs over a period of time. The majority
of the Engineering segments contracts are cost-plus
arrangements in which the clients reimburse the Company for the
agreed-upon
amount of wages and benefits, payroll taxes, insurance charges
and other expenses associated with the contracted work, plus a
profit percentage. The majority of the Companys
Engineering contracts are for three-year periods and may contain
renewal clauses, but are subject to termination by either party
after 30 to 90 days written notice. Nearly all
Engineering contracts are obtained by competitive bidding.
See Note 14 of the Notes to the Consolidated Financial
Statements contained in Item 8, Financial Statements
and Supplemental Data, for the operating results of the
reportable operating segments.
Trademarks
The Company believes that it owns or is licensed to use all
corporate names, trade names, trademarks, service marks,
copyrights, patents and trade secrets that are material to the
Companys 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. The Company provides nearly all
its services under contracts originally obtained through
competitive bidding. The low cost of entry in the facility
services business results in a very competitive market, and the
Company experiences competition from a large number of mostly
regional and local owner-operated companies, primarily located
in major cities throughout the United States. The Company also
competes on a national basis with the operating divisions of a
few large, diversified facility services and manufacturing
companies. Indirectly, the Company competes with building owners
and tenants that can perform one or more of the Companys
services
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internally. Furthermore, competitors may have lower costs
because privately-owned companies operating in a limited
geographic area may have significantly lower labor and overhead
costs. These strong competitive pressures could inhibit the
Companys success in bidding for profitable business and
its ability to increase prices as costs rise, thereby reducing
margins.
Sales and
Marketing
The Companys sales and marketing efforts are conducted by
its corporate, subsidiary, regional, branch and district
offices. Sales, marketing, management and operations personnel
in each of these offices participate directly in selling and
servicing clients. 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 has a broad client base in a variety of facilities,
including, but not limited to, commercial office buildings,
industrial buildings, retail stores, shopping centers,
warehouses, airports, health facilities, educational
institutions, stadiums and arenas, and government buildings. No
client accounted for more than 5% of the Companys
consolidated revenues during 2010, 2009 or 2008.
Employees
As of October 31, 2010, the Company employed approximately
96,000 employees. Over 40,000 of these employees are
covered under collective bargaining agreements. Approximately
5,700 of the Companys employees have executive,
managerial, supervisory, administrative, professional, sales,
marketing, office, or clerical responsibilities.
Environmental
Matters
The Companys 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 Companys operations. In addition,
from time to time the Company is involved in environmental
matters at certain of its locations or in connection with its
operations. Historically, the cost of complying with
environmental laws or resolving environmental issues relating to
United States locations or operations has not had a material
adverse effect on the Companys financial position, results
of operations or cash flows. The Company does not believe that
the resolution of known matters at this time will be material.
6
Executive
Officers
The executive officers of the Company on December 23, 2010
were as follows:
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Principal Occupations and Business Experience
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Name
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Age
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During Past Five
Years
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Henrik C. Slipsager
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President and Chief Executive Officer and a Director of ABM
since November 2000.
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James S. Lusk
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Chief Financial Officer of ABM since January 2008; Executive
Vice President of ABM since March 2007; Vice President of
Business Services of Avaya from January 2005 to January 2007;
Chief Financial Officer and Treasurer of BioScrip/MIM from 2002
to 2005; President of Lucent Technologies Business
Services division and Corporate Controller from 1995 to 2002.
Member of the Board of Directors of Glowpoint, Inc. since
February 2007.
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James P. McClure
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Executive Vice President of ABM since September 2002; President
of ABM Janitorial Services since November 2000.
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Tracy K. Price
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Executive Vice President of ABM and President, ABM Engineering
Services since December 1, 2010; Chief Executive Officer and
President of Linc from December 8, 2003. Linc was acquired by
ABM on December 1, 2010 and is a subsidiary of ABM.
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Steven M. Zaccagnini
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Executive Vice President of ABM since December 2005; Senior Vice
President of ABM from September 2002 to December 2005; Chief
Executive Officer of ABM Security Services and Ampco System
Parking since August 2007; Chief Executive Officer of ABM
Engineering Services from August 2007 to December 2010;
President of ABM Facility Services since April 2002.
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Erin M. Andre
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Senior Vice President of ABM since August 2005; Vice President,
Human Resources of National Energy and Gas Transmission, Inc.
from April 2000 to May 2005.
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Dean A. Chin
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Senior Vice President, Chief Accounting Officer and Corporate
Controller of ABM since June 2010; Vice President and Assistant
Controller of the Company from June 2008 to June 2010; Director
of Finance, Readers Digest Association, Inc. from March
2005 to March 2008; Senior Manager, Audit and Business Advisory
Services, Ernst & Young, LLP from July 2001 to January 2005.
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David L. Farwell
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Senior Vice President, Investor Relations of ABM since June
2009; Senior Vice President, Chief of Staff and Treasurer of ABM
from September 2005 to June 2009; Vice President of ABM from
August 2002 to September 2005.
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Sarah Hlavinka McConnell
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General Counsel and Corporate Secretary of ABM since May 2008;
Deputy General Counsel of ABM from September 2007 to May 2008;
Senior Vice President of ABM since September 2007; Vice
President, Assistant General Counsel and Secretary of Fisher
Scientific International Inc. from December 2005 to November
2006; Vice President and Assistant General Counsel of Fisher
Scientific International Inc. from July 2005 to December 2005;
General Counsel of Benchmark Electronics, Inc. from November
2004 to July 2005; Vice President and General Counsel of Fisher
Healthcare, a division of Fisher Scientific International Inc.
from September 2002 to November 2004.
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Gary R. Wallace
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Senior Vice President of ABM, Director of Business Development
and Chief Marketing Officer since November 2000. Mr. Wallace is
resigning as an executive officer of ABM effective December 31,
2010.
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7
Risks Relating to
our Operations
Risks relating to our acquisition of Linc and our acquisition
strategy may adversely impact our results of
operations. On December 1, 2010, we acquired
Linc, a global provider of technical building services that has
significant domestic and international operations. The Linc
acquisition effectively increased the Companys engineering
segment by approximately 165% when measured by revenues.
Realization of the anticipated benefits of the acquisition will
depend, among other things, upon our ability to timely integrate
the Linc business successfully with our operations and to
achieve the anticipated savings associated with reductions in
offices, staffing and other costs. There can be no assurance
that the acquisition of Linc or any acquisition that we make in
the future will provide the benefits that were anticipated when
entering into the transaction. The process of integrating an
acquired business may create unforeseen difficulties and
expenses. The areas in which we may face risks include:
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Expected growth in revenues relating to the combination of our
business with the Linc business may not be achieved as we may
not be able to retain existing clients or attract new clients or
generate anticipated new business;
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The acquisition may divert management time and focus from
operating our business to acquisition integration;
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Key employees may not remain, which could negatively impact our
ability to grow the acquired business;
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A significant portion of Lincs revenues are generated by
government contracts and could be negatively impacted by reduced
government spending on outsourced services as well as payment
delays;
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A portion of Lincs revenues are generated from
international operations and are subject to political risks and
changes in socio-economic conditions, laws and regulations,
including labor, monetary and fiscal policies, and difficulties
in ensuring that foreign operations comply with foreign laws as
well as U.S. laws applicable to U.S. companies with
foreign operations, such as Foreign Corrupt Practices Act, which
could negatively impact our ability to operate and grow our
business in the international arena;
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The Linc acquisition significantly increases our global
presence, thereby increasing our exposure to foreign currency
risks and foreign exchange rate fluctuations;
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The failure to integrate the acquired businesss
accounting, information technology, human resources and other
administrative systems to permit effective management and reduce
expenses;
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The failure to implement or improve internal controls,
procedures and policies appropriate for a public company at a
business that prior to the acquisition lacked some of these
controls, procedures and policies;
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Exposure to international economic conditions and language and
cultural differences relating to the expansion of our business
overseas as a result of the Linc acquisition;
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Changes in tax law or interpretations of tax law in foreign
jurisdictions could negatively impact future earnings;
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Incurrence of additional indebtedness as a result of the Linc
acquisition could impact our cash flow; and
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We may encounter unanticipated or unknown liabilities relating
to the acquired Linc business.
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Portions of our historic growth have been generated by
acquisitions, and we expect to continue to acquire businesses in
the future as part of our growth strategy. A slowdown in
acquisitions could lead to a slower growth rate, constant or
lower margins, as well as lower revenue growth. There can be no
assurance that any acquisition we make in the future will
provide us with the benefits that we anticipate when entering
into the transaction. The process of integrating an acquired
business may create unforeseen difficulties and expenses. The
areas in which we may face risks include, but are not limited
to, those described above in relationship to the Linc
acquisition.
We are subject to intense competition that can constrain our
ability to gain business, as well as our
profitability. We believe that each aspect of our
business is highly competitive and that such competition is
based primarily on price and quality of service. We provide
nearly all our services under contracts originally obtained
through competitive bidding. The low cost of entry to the
facility services business has led to strongly competitive
markets consisting primarily of regional and local
owner-operated companies. We also compete with
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a few large, diversified facility services and manufacturing
companies on a national basis. Indirectly, we compete with
building owners and tenants who can perform internally one or
more of the services that we provide. These building owners and
tenants have an increased advantage in locations where our
services are subject to sales tax and internal operations are
not. Competitors may have lower costs because privately owned
companies operating in a limited geographic area may have
significantly lower labor and overhead costs. These strong
competitive pressures could impede our success in bidding for
profitable business and our ability to increase prices even as
costs rise, thereby reducing margins.
We have high deductibles for certain insurable risks, and
therefore we are subject to volatility associated with those
risks. We are subject to certain insurable risks
such as workers compensation, general liability,
automobile and property damage. We maintain commercial insurance
policies that provide $150.0 million (or $75.0 million
with respect to claims acquired from OneSource Services, Inc.
(OneSource) in 2008) of coverage for certain
risk exposures above our deductibles (i.e., self-insurance
retention limits). Our deductibles, currently and historically,
have generally ranged from $0.5 million to
$1.0 million per occurrence (in some cases somewhat higher
in California). We are also responsible for claims in excess of
our insurance coverage. Pursuant to our management and service
contracts, we allocate a portion of our insurance-related costs
to certain clients, including workers compensation
insurance, at rates that, because of the scale of our operations
and claims experience, we believe are competitive. A material
change in our insurance costs due to a change in the number of
claims, costs or premiums could have a material effect on our
operating results. Should we be unable to renew our umbrella and
other commercial insurance policies at competitive rates, it
would have an adverse impact on our business, as would the
incurrence of catastrophic uninsured claims or the inability or
refusal of our insurance carriers to pay otherwise insured
claims. Further, to the extent that we self-insure,
deterioration in claims management could increase claim costs,
particularly in the workers compensation area.
Additionally, although we engage third-party experts to assist
us in estimating appropriate self-insurance accounting reserves,
the determination of those reserves is dependent upon
significant actuarial judgments that have a material impact on
our reserves. For example, quantitative assessments of the
impact of recently enacted legislation/regulation
and/or court
rulings require a great deal of actuarial judgment, which are
then updated as actual experience reflecting those changed
environment factors becomes available. Changes in our insurance
reserves as a result of our periodic evaluations of the related
liabilities will likely cause significant volatility in our
operating results that might not be indicative of the operations
of our ongoing business.
An increase in costs that we cannot pass on to clients could
affect our profitability. We negotiate many
contracts under which our clients agree to pay certain costs
related to workers compensation and other insurance
coverage where we self-insure much of our risk. If actual costs
exceed the rates specified in the contracts, our profitability
may decline unless we can negotiate increases in these rates. In
addition, if our costs, particularly workers compensation,
other insurance costs, labor costs, payroll taxes, and fuel
costs, exceed those of our competitors, we may lose existing
business unless we reduce our rates to levels that may not fully
cover our costs.
We primarily provide our services pursuant to agreements
which are cancelable by either party upon 30 to
60 days notice. Our clients can
unilaterally decrease the amount of services we provide or
terminate all services pursuant to the terms of our service
agreements. Any loss of a significant number of clients could in
the aggregate materially adversely affect our operating results.
Our success depends on our ability to preserve our long-term
relationships with clients. The business
associated with long-term relationships is generally more
profitable than that associated with short-term relationships
because we incur
start-up
costs under many new contracts. Once these costs are expensed or
fully depreciated over the appropriate periods, the underlying
contracts become more profitable. Our loss of long-term clients
could have an adverse impact on our profitability even if we
generate equivalent revenues from new clients.
We incur significant accounting and other control costs that
reduce profitability. As a publicly traded
corporation, we incur certain costs to comply with regulatory
requirements. If regulatory requirements were to become more
stringent or if accounting or other controls thought to be
effective later fail, we may be forced to make additional
expenditures, the amounts of which could be material. Most of
our competitors are privately owned, so our accounting and
control costs can be a competitive disadvantage. Should revenues
decline or if we are unsuccessful at increasing prices to cover
higher expenditures for internal controls and
9
audits, the costs associated with regulatory compliance will
rise as a percentage of revenues.
Risks Related to
Market and Economic Conditions
A decline in commercial office building occupancy and rental
rates could affect our revenues and
profitability. Our revenues are affected by
commercial real estate occupancy levels. In certain geographic
areas and service segments, our most profitable revenues are
known as tag jobs, which are services performed for tenants in
buildings in which our business performs building services for
the property owner or management company. A decline in occupancy
rates could result in a decline in fees paid by landlords, as
well as tag work, which would lower revenues, and create pricing
pressures and therefore lower margins. Additionally, adverse
changes in occupancy rates may further reduce demand, depress
prices for our services and cause our clients to cancel their
agreements to purchase our services, thereby possibly reducing
earnings and adversely affecting our business and results of
operations. In addition, in those areas where the workers are
unionized, decreases in revenues can be accompanied by relative
increases in labor costs if we are obligated by collective
bargaining agreements to retain workers with seniority and
consequently higher compensation levels and cannot pass on these
costs to clients.
Deterioration in economic conditions in general could further
reduce the demand for facility services and, as a result, reduce
our earnings and adversely affect our financial
condition. Changes in global, national and local
economic conditions could have a negative impact on our
business. Additionally, adverse economic conditions may result
in clients cutting back on discretionary spending, such as tag
work. Since a significant portion of Parking revenues is tied to
the number of airline passengers and hotel guests, Parking
results could be adversely affected by curtailment of business
and personal travel.
Financial difficulties or bankruptcy of one or more of our
major clients could adversely affect our
results. Future revenues and our ability to
collect accounts receivable depend, in part, on the financial
strength of clients. We estimate an allowance for accounts we do
not consider collectible and this allowance adversely impacts
profitability. In the event clients experience financial
difficulty, and particularly if bankruptcy results,
profitability is further impacted by our failure to collect
accounts receivable in excess of the estimated allowance.
Additionally, our future revenues would be reduced by the loss
of these clients.
Our ability to operate and pay our debt obligations depends
upon our access to cash. Because ABM conducts
business operations through operating subsidiaries, we depend on
those entities to generate the funds necessary to meet financial
obligations. Delays in collections, which could be heightened by
disruption in the credit markets and the financial services
industry, or legal restrictions could restrict our
subsidiaries ability to make distributions or loans to
ABM. The earnings from, or other available assets of, these
operating subsidiaries may not be sufficient to make
distributions to enable us to pay interest on debt obligations
when due or to pay the principal of such debt. We have standby
letters of credit collateralizing self-insurance claims and
insurance deposits that represent amounts collateralizing
self-insurance claims that we cannot access for operations. In
addition, $25.0 million original principal amount of our
investment portfolio is invested in auction rate securities that
are not actively traded. In the event we need to liquidate our
auction rate securities prior to a successful auction, our
expected holding period, or their scheduled maturity, we might
not be able to do so without realizing further losses.
Future declines in the fair value of our investments in
auction rate securities could negatively impact our
earnings. Future declines in the fair value of
our investments in auction rate securities that we deem
temporary will be recorded to accumulated other comprehensive
income, net of taxes. In the past, we have experienced declines
in the fair value of our investments in auction rate securities
that we have determined to be
other-than-temporary.
If at any time in the future we determine that a further decline
in fair value is
other-than-temporary,
we will record a charge to earnings for the credit loss portion
of the impairment. In addition, the significant assumptions used
in estimating credit losses may be different than actual
realized losses, which could impact our earnings.
Uncertainty in the credit markets may negatively impact our
costs of borrowing, our ability to collect receivables on a
timely basis and our cash flow. The United States
and global economies and the financial and credit markets
continue to experience declines or slow growth and there
continues to be diminished liquidity and credit availability.
These conditions may have a material adverse effect on our
operations and our costs of borrowing. In addition, the
tightening of credit in financial markets may adversely affect
the
10
ability of our clients to obtain financing, which could
adversely impact our ability to collect amounts due from such
clients or result in a decrease, or cancellation, of our
services under our client contracts. Declines in our ability to
collect receivables or in the level of client spending could
adversely affect the results of our operations and our liquidity.
Risks Relating to
Indebtedness and Impairment Charges
Any future increase in the level of debt or in interest rates
can affect our results of operations. Any future
increase in the level of debt will likely increase our interest
expense. Unless the operating income associated with the use of
these funds exceeds the debt expense, borrowing money will have
an adverse impact on our results. In addition, incurring debt
requires that a portion of cash flow from operating activities
be dedicated to interest payments and principal payments. Debt
service requirements could reduce our ability to use our cash
flow to fund operations and capital expenditures or to
capitalize on future business opportunities (including
additional acquisitions). Because current interest rates on our
debt are variable, an increase in prevailing rates would
increase our interest costs. Further, our credit facility
agreement contains both financial covenants and covenants that
limit our ability to engage in specified transactions, which may
also constrain our flexibility.
An impairment charge could have a material adverse effect on
our financial condition and results of
operations. Under Accounting Standards
Codificationtm
(ASC) 350, Intangibles Goodwill
and Other (ASC 350), we are required to test
goodwill for impairment on an annual basis based upon a fair
value approach. Goodwill represents the excess of the amount we
paid to acquire our subsidiaries and other businesses over the
fair value of their net assets at the dates of the acquisitions.
We have chosen to perform our annual impairment reviews of
goodwill at the beginning of the fourth quarter of each fiscal
year. We also are required to test goodwill for impairment
between annual tests if events occur or circumstances change
that would more likely than not reduce the fair value of any
reporting unit below its carrying amount. In addition, we test
certain intangible assets for impairment annually or if events
occur or circumstances change that would indicate the remaining
carrying amount of these intangible assets might not be
recoverable. These events or circumstances could include, but
are not limited to, a significant change in the business
climate, legal factors, operating performance indicators,
competition, and sale or disposition of a significant portion of
one of our businesses. If the fair market value of one of our
businesses is less than its carrying amount, we could be
required to record an impairment charge. The valuation of the
businesses requires judgment in estimating future cash flows,
discount rates and other factors. In making these judgments, we
evaluate the financial health of our businesses, including such
factors as market performance, changes in our client base and
operating cash flows. The amount of any impairment could be
significant and could have a material adverse effect on our
reported financial results for the period in which the charge is
taken.
Risks Related to
Labor, Legal Proceedings and Compliance
We are defendants in several class and representative actions
or other lawsuits alleging various claims that could cause us to
incur substantial liabilities. We are defendants
in several class and representative action lawsuits brought by
or on behalf of our current and former employees alleging
violations of federal and state law, including with respect to
certain wage and hour matters. It is not possible to predict the
outcome of these lawsuits or any other litigation or arbitration
to which we are subject. These lawsuits and other proceedings
may consume substantial amounts of our financial and managerial
resources, regardless of the ultimate outcome of the lawsuits
and other proceedings. In addition, we may become subject to
similar lawsuits in the same or other jurisdictions. An
unfavorable outcome with respect to these lawsuits and any
future lawsuits could, individually or in the aggregate, cause
us to incur substantial liabilities that may have a material
adverse effect upon our business, financial condition or results
of operations.
Federal health care reform legislation may adversely affect
our business and results of operations. In March
2010, the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010 were signed
into law in the United States (collectively, the Health
Care Reform Laws). The Health Care Reform Laws include a
large number of health-related provisions that become effective
over the next four years, including requiring most individuals
to have health insurance and establishing new regulations on
health plans. Although the Health Care Reform Laws do not
mandate that employers offer health insurance, beginning in 2014
penalties will be assessed on large employers who do not offer
health insurance that meets certain affordability or benefit
requirements. Providing such additional health insurance
11
benefits to our employees, or the payment of penalties if such
coverage is not provided, would increase our expense. If we are
unable to raise the rates we charge our clients to cover this
expense, such increases in expense could reduce our operating
profit.
In addition, under the Health Care Reform Laws employers will
have to file a significant amount of additional information with
the Internal Revenue Service and will have to develop systems
and processes to track requisite information. We will have to
modify our current systems, which could increase our general and
administrative expense.
Changes in immigration laws or enforcement actions or
investigations under such laws could significantly adversely
affect our labor force, operations and financial
results. Because many jobs in our Janitorial
segment do not require the ability to read or write English, we
are an attractive employer for recent émigrés to this
country and many of our jobs are filled by such. Adverse changes
to existing laws and regulations applicable to employment of
immigrants, enforcement requirements or practices under those
laws and regulations, and inspections or investigations by
immigration authorities or the prospects or rumors of any of the
foregoing, even if no violations exist, could negatively impact
the availability and cost of personnel and labor to the Company
and the Companys reputation.
Labor disputes could lead to loss of revenues or expense
variations. At October 31, 2010,
approximately 43% of our employees were subject to various local
collective bargaining agreements, some of which will expire or
become subject to renegotiation during the year. In addition, at
any given time, we may face a number of union organizing drives.
When one or more of our major collective bargaining agreements
becomes subject to renegotiation or when we face union
organizing drives, we and the union may disagree on important
issues that, in turn, could lead to a strike, work slowdown or
other job actions at one or more of our locations. In a market
where we and a number of major competitors are unionized, but
other competitors are not unionized, we could lose clients to
competitors who are not unionized. A strike, work slowdown or
other job action could in some cases disrupt us from providing
services, resulting in reduced revenues. If declines in client
service occur or if our clients are targeted for sympathy
strikes by other unionized workers, contract cancellations could
result. The result of negotiating a first time agreement or
renegotiating an existing collective bargaining agreement could
result in a substantial increase in labor and benefits expenses
that we may be unable to pass through to clients. In addition,
proposed legislation, known as The Employee Free Choice Act,
could make it significantly easier for union organizing drives
to be successful and could give third-party arbitrators the
ability to impose terms of collective bargaining agreements upon
us and a labor union if we and such union are unable to agree to
the terms of a collective bargaining agreement.
We participate in multi-employer defined benefit plans which
could result in substantial liabilities being
incurred. We contribute to multi-employer benefit
plans that could result in our being responsible for unfunded
liabilities under such plans that could be material.
Other
Natural disasters or acts of terrorism could disrupt
services. Storms, earthquakes, drought, floods or
other natural disasters or acts of terrorism may result in
reduced revenues or property damage. Disasters may also cause
economic dislocations throughout the country. In addition,
natural disasters or acts of terrorism may increase the
volatility of financial results, either due to increased costs
caused by the disaster with partial or no corresponding
compensation from clients, or, alternatively, increased revenues
and profitability related to tag jobs, special projects and
other higher margin work necessitated by the disaster.
Other issues and uncertainties may include:
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Market rate changes in commodities or foreign currency rates may
increase our operating expenses;
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New accounting pronouncements or changes in accounting policies;
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Changes in federal (U.S.) or state immigration law that raise
our administrative costs;
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Labor shortages that adversely affect our ability to employ
entry level personnel;
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Legislation or other governmental action that detrimentally
impacts expenses or reduces revenues by adversely affecting our
clients; and
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The resignation, termination, death or disability of one or more
key executives that adversely affects client retention or
day-to-day
management.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
12
As of October 31, 2010, the Company had corporate,
subsidiary, regional, branch or district offices in
approximately 296 locations throughout the United States,
the Commonwealth of Puerto Rico and in British Columbia and
Ontario, Canada. At October 31, 2010, the Company owned 11
facilities having an aggregate net book value of
$3.6 million and which were located in:
(1) Jacksonville and Tampa, Florida; (2) Portland,
Oregon; (3) Houston, Texas; (4) Lake Tansi, Tennessee;
(5) Kennewick, Spokane and Tacoma, Washington; and
(6) Spartanburg, South Carolina.
Rental payments under long- and short-term lease agreements
amounted to $106.2 million in 2010. Of this amount,
$69.1 million in rental expense was attributable to parking
lots and garages leased and operated by Parking. The remaining
expense was for the rental or lease of office space, computers,
operating equipment and motor vehicles for the Companys
businesses.
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ITEM 3.
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LEGAL
PROCEEDINGS
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The Company is involved in various claims and legal proceedings
of a nature considered normal to its business, as well as in
additional matters from time to time. The Company records
accruals for contingencies when it is probable or known that a
liability has been incurred and the amount can be reasonably
estimated. These accruals are adjusted periodically as
assessments change or additional information becomes available.
The Company is a defendant in, among others, the following class
action or purported class action lawsuits related to alleged
violations of federal
and/or state
wage-and-hour
laws:
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the consolidated cases of Augustus, Hall and Davis v.
American Commercial Security Services (ACSS) filed July 12,
2005, in the Superior Court of California, Los Angeles County
(the Augustus case);
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the consolidated cases of Bucio and Martinez v. ABM
Janitorial Services filed on April 7, 2006, in the Superior
Court of California, County of San Francisco ( the
Bucio case);
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the consolidated cases of Batiz/Heine v. ACSS filed on
June 7, 2006, in the U.S. District Court of
California, Central District (the Batiz case);
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the consolidated cases of Diaz/Morales/Reyes v. Ampco
System Parking filed on December 5, 2006, in L.A. Superior
Court (the Diaz case);
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Khadera v. American Building Maintenance Co.-West and ABM
Industries filed on March 24, 2008, in U.S District Court
of Washington, Western District (the Khadera case);
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Simpson v. ABM Janitorial Services-Northwest, Inc., and ABM
Industries Incorporated filed on September 24, 2010 in the
Superior Court for the State of Washington in and for King
County (the Simpson case); and
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Villacres v. ABM Security filed on August 15, 2007, in the
U.S. District Court of California, Central District (the
Villacres case).
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The named plaintiffs in the lawsuits described above are current
or former employees of subsidiaries of ABM who allege, among
other things, that they were required to work off the
clock, were not paid proper minimum wage or overtime, were
not provided work breaks or other benefits,
and/or that
they received pay stubs not conforming to state law. In all
cases, the plaintiffs generally seek unspecified monetary
damages, injunctive relief or both.
On January 8, 2009, the Augustus case was certified as a
class action by the Superior Court of California, Los Angeles
County. On October 6, 2010, the Company moved to decertify
the class and for summary judgment. The case has been stayed
pending a decision by the court.
On September 29, 2010, the Batiz case was decertified as a
class action by the United States District Court of California,
Central District, and all opt-in plaintiffs were dismissed
without prejudice.
On February 19, 2010, the United States District Court
granted conditional certification of the class in the Khadera
case as a federal opt-in class action. The Simpson
case, which is a purported class action brought under state law,
was filed in Washington State court subsequent to the decision
of the federal court in the Khadera case and contains
allegations generally similar to those made in the Khadera case.
On January 15, 2009, a federal court judge denied with
prejudice class certification status in the Villacres case. That
case, and the companion state court case filed April 3,
2008, in Los Angeles Superior Court were both subsequently
dismissed with prejudice on summary judgment. On June 17,
2010, the United States Court of Appeals for the Ninth Circuit
affirmed the decision of the district court, which had summarily
dismissed with prejudice the Villacres case. The state court
companion case, filed April 3, 2008 in Los Angeles Superior
Court,
13
has also been dismissed with prejudice by the judge of the Los
Angeles Superior Court. On October 22, 2010, the State
Appellate Court affirmed the decision of the judge of the Los
Angeles Superior Court.
The Company was 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
alleged sexual harassment, discrimination and retaliation. In
2009, fourteen claimants joined the lawsuit alleging various
claims against the Company. The case involved both
Title VII federal law claims and California state law
claims. In June 2010, the Company agreed to a settlement of
$5.8 million for the Morales case. On September 27,
2010, the court accepted the settlement agreement and dismissed
the case. Under the terms of the settlement, ABM also agreed to
enter into a consent decree requiring a subsidiary to, among
other things, track sexual harassment claims and monitor
compliance with certain applicable laws.
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ITEM 4.
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REMOVED
AND RESERVED
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14
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market
Information and Dividends
The Companys common stock is listed on the New York Stock
Exchange (NYSE: ABM). The following table sets forth the high
and low
intra-day
prices of the Companys common stock on the New York Stock
Exchange and quarterly cash dividends declared on shares of
common stock for the periods indicated:
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Fiscal Quarter
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First
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Second
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Third
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Fourth
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Year
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Fiscal Year 2010
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Price range of common stock:
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High
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$
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21.65
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$
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22.24
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$
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23.00
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$
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22.94
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$
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23.00
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Low
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$
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17.94
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$
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18.96
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$
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19.83
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$
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18.56
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$
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17.94
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Dividends declared per share
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$
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0.135
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$
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0.135
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$
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0.135
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$
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0.135
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$
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0.540
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Fiscal Year 2009
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Price range of common stock:
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High
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$
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19.66
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$
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18.10
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$
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21.26
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$
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23.32
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$
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23.32
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Low
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$
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12.83
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$
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11.64
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$
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15.75
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$
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18.67
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$
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11.64
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Dividends declared per share
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$
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0.130
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$
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0.130
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$
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0.130
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$
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0.130
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$
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0.52
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To our knowledge, there are no current factors that are likely
to materially limit the Companys ability to pay comparable
dividends for the foreseeable future.
Stockholders
At December 10, 2010, there were 2,883 registered holders
of the Companys common stock.
15
Performance
Graph
The following graph compares a $100 investment in the
Companys stock on October 31, 2005 with a $100
investment in each of the Standard & Poors 500
Index ( S&P 500 Index) and the Russell 2000
Value Index, also made on October 31, 2005. The graph
portrays total return, 2005 2010, assuming
reinvestment of dividends. The comparisons in the following
graph are based on historical data and are not indicative of, or
intended to forecast, the possible future performance of the
Companys common stock. This graph shows returns based on
fiscal years ended October 31.
COMPARISON OF
CUMULATIVE FIVE YEAR TOTAL RETURN
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Indexed Returns
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Years Ending
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Company/Index
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2005
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2006
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2007
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2008
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2009
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2010
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ABM Industries Incorporated
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100
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102.87
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124.13
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88.35
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104.72
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129.00
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S&P 500 Index
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100
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116.34
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133.28
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85.17
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93.52
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108.97
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Russell 2000 Value Index
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100
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122.90
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125.41
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87.11
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88.82
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110.20
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The performance graph shall not be deemed soliciting
material, be filed with the Commission or
subject to Regulation 14A or 14C, or to the liabilities of
Section 18 of the Securities Exchange Act of 1934, as
amended.
16
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ITEM 6.
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SELECTED
FINANCIAL DATA
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The following selected financial data is derived from the
Companys consolidated financial statements as of and for
each of the five years ended October 31, 2010. This
information should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8,
Financial Statements and Supplementary Data. As a
result of the sale of substantially all of the assets of the
Lighting segment on October 31, 2008, the financial results
of this segment have been classified as discontinued operations
in the following selected financial data and in the
Companys accompanying consolidated financial statements
and notes for all periods presented. Additionally, acquisitions
made in recent years (most significantly, the Companys
acquisition of OneSource on November 14, 2007) have
impacted comparability among the periods presented.
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Years Ended October 31,
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2010
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2009
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2008
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2007
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2006
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(In thousands, except per share data)
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|
|
|
|
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (1)
|
|
$
|
3,495,747
|
|
|
$
|
3,481,823
|
|
|
$
|
3,623,590
|
|
|
$
|
2,706,105
|
|
|
$
|
2,579,351
|
|
Gain on insurance claim (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,000
|
|
|
|
Total income
|
|
|
3,495,747
|
|
|
|
3,481,823
|
|
|
|
3,623,590
|
|
|
|
2,706,105
|
|
|
|
2,645,351
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (3)
|
|
|
3,134,018
|
|
|
|
3,114,699
|
|
|
|
3,224,696
|
|
|
|
2,429,694
|
|
|
|
2,312,161
|
|
Selling, general and administrative (4)
|
|
|
241,526
|
|
|
|
263,633
|
|
|
|
287,650
|
|
|
|
193,658
|
|
|
|
185,113
|
|
Amortization of intangible assets
|
|
|
11,364
|
|
|
|
11,384
|
|
|
|
11,735
|
|
|
|
5,565
|
|
|
|
5,764
|
|
|
|
Total expenses
|
|
|
3,386,908
|
|
|
|
3,389,716
|
|
|
|
3,524,081
|
|
|
|
2,628,917
|
|
|
|
2,503,038
|
|
|
|
Operating profit
|
|
|
108,839
|
|
|
|
92,107
|
|
|
|
99,509
|
|
|
|
77,188
|
|
|
|
142,313
|
|
Credit losses on auction rate security: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTTI recognized in earnings (other comprehensive income)
|
|
|
127
|
|
|
|
(2,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
4,639
|
|
|
|
5,881
|
|
|
|
15,193
|
|
|
|
453
|
|
|
|
494
|
|
|
|
Income from continuing operations before income taxes
|
|
|
104,073
|
|
|
|
84,660
|
|
|
|
84,316
|
|
|
|
76,735
|
|
|
|
141,819
|
|
Provision for income taxes
|
|
|
40,203
|
|
|
|
29,170
|
|
|
|
31,585
|
|
|
|
26,088
|
|
|
|
57,495
|
|
|
|
Income from continuing operations
|
|
|
63,870
|
|
|
|
55,490
|
|
|
|
52,731
|
|
|
|
50,647
|
|
|
|
84,324
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(3,776
|
)
|
|
|
1,793
|
|
|
|
1,122
|
|
Gain on insurance claim, net of taxes (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759
|
|
Loss on sale of discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(3,521
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(7,297
|
)
|
|
|
1,793
|
|
|
|
8,881
|
|
|
|
Net income
|
|
$
|
64,121
|
|
|
$
|
54,293
|
|
|
$
|
45,434
|
|
|
$
|
52,440
|
|
|
$
|
93,205
|
|
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.23
|
|
|
$
|
1.08
|
|
|
$
|
1.04
|
|
|
$
|
1.02
|
|
|
$
|
1.72
|
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
|
0.04
|
|
|
|
0.18
|
|
|
|
Net Income
|
|
|
1.23
|
|
|
|
1.06
|
|
|
|
0.90
|
|
|
|
1.06
|
|
|
|
1.90
|
|
|
|
Net income per common share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.21
|
|
|
|
1.07
|
|
|
|
1.03
|
|
|
|
1.00
|
|
|
|
1.70
|
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.15
|
)
|
|
|
0.04
|
|
|
|
0.18
|
|
|
|
Net Income
|
|
$
|
1.21
|
|
|
$
|
1.05
|
|
|
$
|
0.88
|
|
|
$
|
1.04
|
|
|
$
|
1.88
|
|
|
|
Weighted-average common and common equivalent shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,117
|
|
|
|
51,373
|
|
|
|
50,519
|
|
|
|
49,496
|
|
|
|
49,054
|
|
Diluted
|
|
|
52,908
|
|
|
|
51,845
|
|
|
|
51,386
|
|
|
|
50,629
|
|
|
|
49,678
|
|
Dividends declared per common share
|
|
$
|
0.54
|
|
|
$
|
0.52
|
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
0.44
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,548,670
|
|
|
$
|
1,521,153
|
|
|
$
|
1,575,944
|
|
|
$
|
1,132,198
|
|
|
$
|
1,069,462
|
|
Trade accounts receivable net
|
|
|
450,513
|
|
|
|
445,241
|
|
|
|
473,263
|
|
|
|
349,195
|
|
|
|
358,569
|
|
Insurance deposits (6)
|
|
|
36,164
|
|
|
|
42,500
|
|
|
|
42,506
|
|
|
|
|
|
|
|
|
|
Goodwill (6)
|
|
|
593,983
|
|
|
|
547,237
|
|
|
|
535,772
|
|
|
|
234,177
|
|
|
|
229,885
|
|
Other intangibles net
|
|
|
65,774
|
|
|
|
60,199
|
|
|
|
62,179
|
|
|
|
24,573
|
|
|
|
23,881
|
|
Investments in auction rate securities
|
|
|
20,171
|
|
|
|
19,531
|
|
|
|
19,031
|
|
|
|
25,000
|
|
|
|
|
|
Line of credit (6)
|
|
|
140,500
|
|
|
|
172,500
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
Insurance claims
|
|
|
348,314
|
|
|
|
346,327
|
|
|
|
346,157
|
|
|
|
261,043
|
|
|
|
248,377
|
|
Insurance recoverables
|
|
$
|
76,098
|
|
|
$
|
72,117
|
|
|
$
|
71,617
|
|
|
$
|
55,900
|
|
|
$
|
53,188
|
|
|
|
(1) Revenues in 2010 include revenues associated with the
acquisitions of L&R and Diversco, which were acquired on
October 1, 2010 and June 30, 2010, respectively,
totaling $43.0 million. Beginning in 2008, includes
revenues associated with the acquisition of OneSource, which was
acquired on November 14, 2007. Revenues in 2007 included a
$5.0 million gain from the termination of off-airport
parking garage leases.
(2) The World Trade Center formerly represented the
Companys largest job-site; its destruction on
September 11, 2001 has directly and indirectly impacted
subsequent operating results. Amounts for 2006 consist of total
gains in connection with World Trade Center insurance claims of
$80.0 million in 2006. Of the $80.0 million,
$14.0 million related to the recovery of the Lighting
segments loss of business profits and has been
reclassified to discontinued operations.
17
(3) Operating expenses in 2010 and 2009 include adjustments
to increase self-insurance reserves related to prior year claims
by $1.2 million and $9.4 million, respectively, while
2008, 2007 and 2006 included adjustments to reduce
self-insurance reserves related to prior years by
$22.8 million, $1.8 million and $14.1 million,
respectively. Additionally, operating expenses for 2009 includes
a net benefit of a $9.6 million legal settlement received
from the Companys former third-party administrator.
(4) Selling, general and administrative expenses in 2010,
2009, 2008 and 2007 included $5.7 million,
$21.8 million, $24.3 million and $4.6 million of
costs, respectively, associated with (a) the implementation
of a new payroll and human resources information system, and the
upgrade of the Companys accounting systems; (b) the
transition of certain back office functions to the
Companys Shared Services Center in Houston, Texas;
(c) the move of the Companys corporate headquarters
to New York; and (d) integration costs associated with the
acquisition of OneSource in 2008.
Selling, general and administrative expense in 2010 included a
$5.8 million litigation settlement related to the Morales
case and a $3.4 million reversal of previously recorded
share-based compensation expense, due to a change in the
probability of achieving the financial performance targets
established in connection with certain performance share grants.
Selling, general and administrative expense in 2008 included
$68.0 million of integration related expenses associated
with the OneSource acquisition and a $6.3 million write-off
of deferred costs related to the Companys Master
Professional Services Agreement between the Company and
International Business Machines Corporation (IBM)
(see the Commitments
sub-section
of the Liquidity and Capital Resources section
below).
Selling, general and administrative expenses in 2006 included
$3.3 million of transition costs associated with the
outsourcing of the Companys information technology
infrastructure and support services to IBM.
(5) The Company determined that one of its auction rate
securities was
other-than-temporarily
impaired during 2009. The
other-than-temporary
impairment approximated $3.7 million, of which
$1.6 million was recognized in earnings as a credit loss,
with a corresponding reduction in the cost basis of that
security during 2009. (See Note 5 of the Notes to the
Consolidated Financial Statements contained in Item 8,
Financial Statements and Supplementary Data.)
(6) In connection with the OneSource acquisition, the
Company acquired insurance deposits that represent amounts
collateralizing OneSources self-insurance claims. The
Company recorded $273.8 million of goodwill representing
the excess of the cost of the acquisition over the fair value of
net assets acquired in the acquisition of OneSource. As of
October 31, 2010, the Company had outstanding borrowings
under its line of credit of $140.5 million, which is
primarily associated with acquisitions.
18
Forward-Looking
Statements
Certain statements in this Annual Report on
Form 10-K,
and in particular, statements found in Item 7,
Managements Discussion and Analysis of Financial Condition
and Results of Operations, that are not historical in nature
constitute forward-looking statements. These statements are
often identified by the words will, may,
should, continue,
anticipate, believe, expect,
plan, appear, project,
estimate, intend, and other words of a
similar nature. Such statements reflect the current views of the
Company with respect to future events and are subject to risks
and uncertainties that could cause actual results to differ
materially from those expressed or implied in these statements.
In Item 1A, we have listed specific risks and uncertainties
that you should carefully read and consider. We undertake no
obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion should be read in conjunction with the
Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data. All information in the discussion and references to
years are based on the Companys fiscal year that ends on
October 31. All references to 2010, 2009, 2008 and 2007,
unless otherwise indicated, are to fiscal years 2010, 2009, 2008
and 2007, respectively. The Companys fiscal year is the
period from November 1 through October 31. Except where
specifically indicated, this discussion does not include the
operations of Linc, which the Company acquired on
December 1, 2010.
Overview
ABM Industries Incorporated (ABM), through its
subsidiaries (collectively, 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 Companys business is impacted by
industrial activity, commercial office building occupancy and
rental rates, air travel levels, tourism, and transportation
needs at educational institutions and health care service
facilities, among others.
On December 1, 2010, the Company acquired Linc pursuant to
the Merger Agreement, dated as of December 1, 2010, by and
among ABM, Linc, GI Manager LP, as the Members
Representative, and Lightning Services, LLC, a wholly-owned
subsidiary of ABM (Merger Sub). Pursuant to the
Merger Agreement, Merger Sub merged with and into Linc, and Linc
continued as the surviving corporation and as a wholly owned
subsidiary of ABM. The aggregate purchase price for all of the
outstanding limited liability company interests of Linc was
approximately $301.0 million, subject to certain
adjustments as set forth in the Merger Agreement. With annual
revenues of approximately $579 million and approximately
3,000 employees, Linc provides
end-to-end
integrated facilities management services that improve operating
efficiencies, reduce energy consumption and lower overall
operational costs for more than 25,000 facilities in the
government, commercial and residential markets throughout the
United States and select international markets. The operations
of Linc will be included in the Engineering segment as of the
acquisition date.
On October 1, 2010, the Company acquired select assets of
L&R from the L&R Group of Companies for an aggregate
purchase price of $34.7 million, including
$0.2 million of assets distributed as consideration. The
Company incurred $0.4 million of direct acquisition costs,
which were expensed as incurred. L&R employs approximately
2,500 people and services more than 450 client
accounts across the United States. The acquisition extends and
expands the Companys parking business in major cities. The
acquisition also expands the Companys presence at
airports. The results of operations of L&R are included in
the Companys Parking segment as of the acquisition date.
The amounts of L&R revenues and operating profit included
in the Companys consolidated statements of income for 2010
were $14.9 million and $0.4 million, respectively.
On June 30, 2010, the Company acquired all of the
outstanding shares of Diversco from DHI Holdings, Inc. for
$30.6 million in cash and incurred direct acquisition costs
of $0.2 million, which were expensed as incurred. The
purchase price was subsequently adjusted to $30.4 million
in connection with a working capital adjustment. Diversco is a
national provider of outsourced facility services. The
acquisition expands the geographic reach of the Companys
janitorial and security businesses, particularly in the
Southeast, Midwest and
Mid-Atlantic
regions of the United States. The results of operations of
Diversco are included in the Companys Janitorial and
Security segments as of the acquisition date. The amounts of
Diverscos revenues and operating
19
profit included in the Companys consolidated statements of
income for 2010 were $28.1 million and $1.2 million,
respectively.
Revenues at the Companys Janitorial, Security and
Engineering segments are primarily based on the performance of
labor-intensive services at contractually specified prices.
Revenues generated by the Parking segment relate to parking and
transportation services that 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.
Total revenues increased $13.9 million, or 0.4%, to
$3,495.7 million in 2010 from $3,481.8 million in
2009. The Companys growth in total revenues includes
approximately $43.0 million of revenues attributable to the
L&R and Diversco acquisitions described above. Excluding
the L&R and Diversco acquisitions, revenues decreased
$29.1 million, or 0.8%, in 2010, as compared to 2009.
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 throughout
2010. In addition, during 2010 the Janitorial segment continued
to experience some additional reductions in the level and scope
of client services and contract price compression. These revenue
decreases in the Janitorial segment were partially offset by
additional revenues from new clients and the expansion of
services to existing clients in the Engineering segment.
Despite the reductions in revenues, the Companys operating
profit, excluding Corporate, increased $5.1 million, or
2.7%, to $193.1 million in 2010 from $188.0 million in
2009. This increase primarily related to increases in operating
profit in the Engineering and Parking segments as a result of
additional revenues from new clients and the expansion of
services to existing clients and cost control measures in all
segments, including lower compensation costs.
The Companys largest operating segment is the Janitorial
segment, which generated approximately 66.9% of the
Companys revenues and approximately 73.0% of the
Companys operating profit, excluding the Corporate
segment, for 2010.
In addition to revenues and operating profit, the Companys
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, the timing and amount
of income tax payments and the timing and amount of payments on
self-insured claims. The Companys cash flows provided by
continuing operating activities were $140.7 million,
$121.3 million and $62.3 million for 2010, 2009 and
2008, respectively.
The Company self-insures certain insurable risks, such as
workers compensation, general liability, automobile and
property damage. The Company periodically performs a thorough
review, with the assistance of external professionals, of its
estimate of the ultimate cost for self-insurance reserves. As
part of this evaluation, the Company reviews the status of
existing and new claims and coordinates this review with
third-party claims administrators. The Company compares actual
trends to expected trends and monitors claims developments. The
third-party claims administrators that manage the claims for the
Company project their estimates of the ultimate cost for each
claim based upon known factors related to the management of the
claims, legislative matters and case law. After reviewing the
findings with the Company, the specific case reserves estimated
by the third-party claims administrators are provided to an
actuary who assists the Company in projecting an actuarial
estimate of the overall ultimate cost for self- insurance, which
includes the case reserves plus an actuarial estimate of
reserves required for additional developments, including
incurred but not reported claim costs. The
independent third-partys actuarial estimate of the
reserves is reviewed by management and forms the basis for
managements best estimate of the reserves, as recorded in
the Companys financial statements.
Although the Company engages third-party experts to assist in
estimating appropriate self-insurance reserves, the
determination of those reserves is dependent upon significant
actuarial judgments that have a material impact on the
Companys reserves. The interpretation of trends requires
knowledge of many factors that may or may not be reflective of
adverse or favorable developments (e.g., changes in regulatory
requirements). Trends may also be impacted by changes in safety
programs or claims handling practices. If analyses of losses
suggest that the frequency or severity of claims incurred has
changed, the Company would be required to record increases or
decreases in expenses for self-insurance liabilities.
20
During 2008, favorable developments in the claims management
process as well as the effects of favorable legislation in
certain states continued to be observed. Specifically, the
Company continued to experience the favorable impact of prior
workers compensation reforms in California. Prior to the
reforms of 2003 and 2004, the California workers
compensation system was characterized by high insurances rates
to employers and variability in benefits to injured workers. To
address rising costs, a series of reforms were passed by the
California Legislature. The reforms focused on, among other
things, revising medical fee schedules, improving quality of
care, encouraging medical utilization review, capping temporary
disability benefits, and reducing the number and size of
permanent disability awards. Following the implementation of
reforms, from 2004 to 2008, the industry workers
compensation claims cost benchmark was reduced by 65%. The
reforms not only favorably affected claims incurred after 2004,
but also favorably affected certain claims open at the time the
reforms were enacted. Accordingly, as benefits of the reforms
had become more readily measurable in 2008, estimates of the
cost of settling these older claims were reduced in 2008.
Reduced claim costs, which the Company believes were driven by
the continuing effects of California workers compensation
reform and internal loss control efforts, were observed during
2008 in both the Companys general liability and
workers compensation program claims in 2008. After
analyzing the historical loss development patterns, comparing
the loss development against benchmarks, and applying actuarial
projection methods, in 2008 the Company lowered its expected
losses for prior year claims, which resulted in a
$22.8 million reduction in the related self-insurance
reserves, that was recorded in the Corporate segment.
During 2009, favorable trends observed during recent years did
not continue. Specifically, the Company noticed the effects of
(i) unfavorable developments (primarily affecting
workers compensation in California and other states where
the Company has a significant presence), (ii) certain case
law decisions during 2009 resulting in a more favorable
atmosphere for injured workers regarding their disability rating
in California, and (iii) existing claims in California
being updated by injured workers to add additional medical
conditions to their original claims, resulting in additional
discovery costs and likely higher medical and indemnity costs.
Further, during 2009, certain general liability claims related
to earlier policy years experienced losses significantly higher
than were previously estimated. After analyzing the historical
loss development patterns, comparing the loss development
against benchmarks, and applying actuarial projection methods,
the Company increased its expected losses for prior year claims,
which resulted in an increase in the related self-insurance
reserves of $9.4 million in 2009, that was recorded in the
Corporate segment.
During 2010, the Company increased its reserves related to prior
year claims by approximately $1.2 million, which was
recorded in the Corporate segment. The increase resulted mostly
from higher than expected losses in general liability claims.
While expenses related to workers compensation claims were
observed to be coming in higher for New York and Illinois, the
impact of certain 2009 case law decisions in California was less
than previously expected, offsetting the increases in the other
states.
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 is
focused on integrating recent acquisitions and plans to remain
competitive by, among other things, continued cost control
strategies. The Company will continue 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 will continue to seek 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 growing demand for a
global integrated facility services solution provider.
21
Liquidity and
Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
(In thousands)
|
|
2010
|
|
2009
|
|
Change
|
|
|
Cash and cash equivalents
|
|
$
|
39,446
|
|
|
$
|
34,153
|
|
|
$
|
5,293
|
|
Working capital
|
|
$
|
274,905
|
|
|
$
|
278,303
|
|
|
$
|
(3,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2010
|
|
|
2009
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
149,864
|
|
|
$
|
140,871
|
|
|
$
|
68,307
|
|
|
$
|
8,993
|
|
|
$
|
72,564
|
|
Net cash used in investing activities
|
|
$
|
(87,860
|
)
|
|
$
|
(37,467
|
)
|
|
$
|
(421,522
|
)
|
|
$
|
(50,393
|
)
|
|
$
|
384,055
|
|
Net cash (used in) provided by financing activities
|
|
$
|
(56,711
|
)
|
|
$
|
(95,992
|
)
|
|
$
|
232,239
|
|
|
$
|
39,281
|
|
|
$
|
(328,231
|
)
|
|
|
At October 31, 2010, the Company had a $450 million
syndicated line of credit (the old Facility). As of
October 31, 2010, the total outstanding amounts under the
old Facility in the form of cash borrowings and standby letters
of credit were $140.5 million and $100.8 million,
respectively.
In connection with the acquisition of Linc, the Company
terminated the old Facility on November 30, 2010 and
replaced it with a new $650 million five year syndicated
line of credit (the new Facility). The new Facility
is scheduled to expire on November 30, 2015, with the
option to increase the size of the new Facility to
$850 million at any time prior to the expiration.
Borrowings under the new Facility were used to acquire Linc on
December 1, 2010, as well as pay down the outstanding
balances under the old Facility. The new Facility is available
for working capital, the issuance of standby letters of credit,
the financing of capital expenditures and other general
corporate purposes, including acquisitions. The Companys
ability to draw down available amounts under the new Facility 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. See Note 16 of the Notes to the
Consolidated Financial Statements contained in Item 8,
Financial Statements and Supplementary Data, for
additional information.
As of November 30, 2010, the Company was in compliance with
all covenants under the new Facility and expects to be in
compliance in the foreseeable future.
The Company believes that the cash generated from operations and
amounts available under the new Facility will be sufficient to
fund the Companys operations and cash requirements, except
to the extent cash is required for significant acquisitions, if
any.
Working Capital. Working capital decreased by
$3.4 million to $274.9 million at October 31,
2010 from $278.3 million at October 31, 2009.
Excluding the effects of discontinued operations, working
capital increased by $2.1 million to $270.7 million at
October 31, 2010 from $268.6 million at
October 31, 2009.
Cash Flows from Operating Activities. Net cash
provided by operating activities was $149.9 million,
$140.9 million and $68.3 million in 2010, 2009 and
2008, respectively.
The $9.0 million increase in 2010 compared to 2009 was
primarily related to:
|
|
|
|
|
a $12.6 million increase in the
year-over-year
change in other assets and long term receivables, primarily
related to the reduction of required cash insurance deposits,
the decrease of pre-payments for insurance claims reserves and
collections received on notes receivables;
|
|
|
|
an $11.5 million net increase in the
year-over-year
change in income taxes, primarily related to the increase in
income taxes payable due to timing of income tax payments and an
increase in tax reserves;
|
|
|
|
an $8.4 million increase in income from continuing
operations; and
|
|
|
|
a $4.8 million increase in the
year-over-year
change in accounts payable and accrued liabilities, primarily
related to the timing of payments made on vendor invoices;
|
partially offset by:
|
|
|
|
|
an $18.0 million decrease in the
year-over-year
change in trade accounts receivable, primarily related to the
timing of collections received from clients and a decrease in
revenues from 2008 to 2009; and
|
22
|
|
|
|
|
a $10.5 million decrease in net cash provided by
discontinued operating activities. Net cash provided by
discontinued operating activities was $9.1 million in 2010,
compared to $19.6 million in 2009. The cash provided by
discontinued operating activities primarily related to cash
collections from client contracts transferred in connection with
the sale of the Lighting business that contained deferred
charges related to services previously performed by the Company
prior to the sale.
|
The $72.6 million increase in 2009 compared to 2008 was
primarily related to:
|
|
|
|
|
a $54.3 million decrease in the
year-over-year
changes in trade accounts receivable, primarily related to
improved timing of collections; and
|
|
|
|
a $13.6 million increase in net cash provided by
discontinued operating activities, primarily related to the
collections of accounts receivable during 2009. Net cash
provided by discontinued operating activities was
$19.6 million in 2009 compared to $6.0 million in 2008.
|
Cash Flows from Investing Activities. Net cash
used in investing activities was $87.9 million,
$37.5 million and $421.5 million in 2010, 2009 and
2008, respectively.
The $50.4 million increase in net cash used in investing
activities in 2010, compared to 2009, was primarily related to a
$44.4 million increase in cash paid for asset and business
acquisitions and additional consideration paid for prior years
acquisitions in 2010, compared to 2009.
In 2010 the Company paid $62.3 million for the L&R and
Diversco acquisitions, net of cash acquired, and
$3.3 million of additional consideration for the
achievement of certain financial performance targets in
connection with prior years acquisitions.
In 2009, the Company paid $15.1 million for the Control
Building Services, Inc., Control Engineering Services, Inc., and
TTF, Inc. (Control) acquisition and
$6.0 million of additional consideration for the
achievement of certain financial performance targets in
connection with prior years acquisitions (excluding
$1.2 million related to contingent amounts settled in stock
issuances).
The $384.1 million decrease in 2009 compared to 2008 was
primarily related to a $401.8 million decrease in cash paid
for acquisitions and additional consideration paid for prior
years acquisitions and a $15.5 million decrease in capital
expenditures, partially offset by $33.4 million of proceeds
received for the sale of the Lighting business in 2008.
In 2009, the Company paid $15.1 million for the Control
acquisition and $6.0 million of additional consideration
for the achievement of certain financial performance targets in
connection with prior years acquisitions (excluding
$1.2 million related to additional consideration settled in
stock issuances).
In 2008, the Company paid $390.5 million and
$27.3 million for the acquisition of OneSource and the
remaining 50% equity of Southern Management Company
(Southern Management), respectively, and
$5.1 million of additional consideration paid for the
achievement of certain financial performance targets in
connection with prior years acquisitions (excluding
$0.6 million related to contingent amounts settled in stock
issuances).
Cash Flows from Financing Activities. Net cash
used in financing activities was $56.7 million and
$96.0 million in 2010 and 2009, respectively, and net cash
provided by financing activities was $232.2 million in 2008.
The $39.3 million decrease in net cash used in financing
activities in 2010 compared to 2009 was primarily related to
$25.5 million of net repayments on borrowings from the line
of credit (which included the financing of the L&R and
Diversco acquisitions for $64.9 million, excluding
acquisition costs).
The $328.2 million decrease in 2009 compared to 2008 was
primarily related to:
|
|
|
|
|
a $287.5 million decrease in the net borrowings from the
Companys line of credit. During 2009, net repayments on
borrowings from the line of credit were $57.5 million,
compared to net borrowings of $230.0 million in 2008. Net
borrowings in 2008 were primarily related to the acquisition of
OneSource and the purchase of the remaining 50% equity of
Southern Management for $410.5 million, excluding
acquisition costs; and
|
|
|
|
a $32.6 million decrease in the book overdraft payables,
primarily related to the timing of payments made on vendor
invoices.
|
23
Commitments
As of October 31, 2010, the Companys future
contractual payments, commercial commitments and other long-term
liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payments Due By
Period
|
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1 3 years
|
|
3 5 years
|
|
After 5 years
|
|
|
Operating Leases
|
|
$
|
204,328
|
|
|
$
|
59,480
|
|
|
$
|
84,416
|
|
|
$
|
42,806
|
|
|
$
|
17,626
|
|
IBM Master Professional Services Agreement
|
|
|
10,811
|
|
|
|
3,977
|
|
|
|
6,834
|
|
|
|
|
|
|
|
|
|
CompuCom Service Desk Services
|
|
|
2,520
|
|
|
|
840
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217,659
|
|
|
$
|
64,297
|
|
|
$
|
92,930
|
|
|
$
|
42,806
|
|
|
$
|
17,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payments Due By
Period
|
|
Other Long-Term Liabilities
|
|
Total
|
|
Less than 1 year
|
|
1 3 years
|
|
3 5 years
|
|
After 5 years
|
|
|
Unfunded Employee Benefit Plans
|
|
$
|
39,742
|
|
|
$
|
3,141
|
|
|
$
|
5,358
|
|
|
$
|
5,236
|
|
|
$
|
26,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amounts of Commitment
Expiration Per Period
|
|
Commercial Commitments
|
|
Total
|
|
Less than 1 year
|
|
1 3 years
|
|
3 5 years
|
|
After 5 years
|
|
|
Borrowings Under Line of Credit
|
|
$
|
140,500
|
|
|
$
|
|
|
|
$
|
140,500
|
|
|
$
|
|
|
|
$
|
|
|
Standby Letters of Credit
|
|
|
100,759
|
|
|
|
|
|
|
|
100,759
|
|
|
|
|
|
|
|
|
|
Surety Bonds
|
|
|
112,476
|
|
|
|
109,386
|
|
|
|
3,020
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
$
|
353,735
|
|
|
$
|
109,386
|
|
|
$
|
244,279
|
|
|
$
|
70
|
|
|
$
|
|
|
|
|
Total Commitments
|
|
$
|
611,136
|
|
|
$
|
176,824
|
|
|
$
|
342,567
|
|
|
$
|
48,112
|
|
|
$
|
43,633
|
|
|
|
Operating
Leases
The amounts set forth under operating leases represent the
Companys contractual obligations to make future payments
under non-cancelable operating lease agreements for various
facilities, vehicles and other equipment.
IBM Master
Professional Services Agreement
On September 29, 2006, the Company entered into a Master
Professional Services Agreement (the Services
Agreement) with International Business Machines
Corporation (IBM) that became effective
October 1, 2006. Under the Services Agreement, IBM was
responsible for substantially all of the Companys
information technology infrastructure and support services. In
2007, the Company entered into additional agreements with IBM to
provide assistance, support and post-implementation services
relating to the upgrade of the Companys accounting systems
and the implementation of a new payroll system and human
resources information system. In connection with the OneSource
acquisition in 2008, the Company entered into additional
agreements with IBM to provide information technology systems
integration and data center support services through 2009.
During the fourth quarter of 2008, the Company assessed the
services provided by IBM to determine whether the services
provided and the level of support was consistent with the
Companys strategic objectives. Based on this assessment,
the Company determined that some or all of the services provided
under the Services Agreement would be transitioned from IBM. In
connection with this assessment, the Company wrote off
$6.3 million of deferred costs in 2008.
On January 20, 2009, the Company and IBM entered into a
binding Memorandum of Understanding (the MOU),
pursuant to which the Company and IBM agreed to:
(1) terminate certain services then provided by IBM to the
Company under the Services Agreement; (2) transition the
terminated services to the Company
and/or its
designee; (3) resolve certain other disputes arising under
the Services Agreement; and (4) modify certain terms
applicable to services that IBM would continue to provide to the
Company. In connection with the execution of the MOU, the
Company delivered to IBM a formal notice terminating for
convenience certain information technology and support services
effective immediately (the Termination).
Notwithstanding the Termination, the MOU contemplated
(1) that IBM would assist the Company with the transition
of the terminated services to the Company or its designee
pursuant to an agreement (the Transition Agreement)
to be executed by the Company and IBM and (2) the continued
provision by IBM of certain data center support services. On
24
February 24, 2009, the Company and IBM entered into an
amended and restated agreement, which amended the Services
Agreement (the Amended Agreement), and the
Transition Agreement, which memorializes the termination-related
provisions of the MOU as well as other terms related to the
transition services. Under the Amended Agreement, the base fee
for the provision of the defined data center support services is
$18.8 million payable over the service term (March 2009
through December 2013).
In connection with the Termination, the Company agreed to:
(1) reimburse IBM for certain actual employee severance
costs, up to a maximum of $0.7 million, provided the
Company extended comparable offers of employment to a minimum
number of IBM employees; (2) reimburse IBM for certain
early termination costs, as defined, including third-party
termination fees
and/or
wind-down costs totaling approximately $0.4 million
associated with software, equipment
and/or
third-party contracts used by IBM in performing the terminated
services; and (3) pay IBM fees and expenses for requested
transition assistance which were estimated to be approximately
$0.4 million.
Employee Benefit
Plans
The Company has defined benefit, post-retirement and deferred
compensation plans. All defined benefit and post-retirement
plans have been amended to preclude new participants. These
plans are described in further detail in Note 10 of the
Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data. As of October 31, 2010, the aggregate employee
benefit plan liability, including the Companys deferred
compensation plans, was $28.5 million. Future benefits
expected to be paid over the next 20 years are
approximately $39.7 million.
The defined benefit and post-retirement plan liabilities as of
October 31, 2010 assume future annual compensation
increases of 3.5%, a rate of return on plan assets of 8.0% (when
applicable), and discount rates in the range of 4.50% to 4.98%.
The discount rates were determined using the individual cash
flows of each plan. In determining the long-term rate of return
for a plan, the Company considers the nature of the plans
investments, historical rates of return, and an expectation for
the plans investment strategies. The Company believes
changes in assumptions will not have a material impact on the
Companys financial position and operating performance. The
Company expects to fund payments required under the plans with
cash flows from operating activities when due in accordance with
the plan.
The employee benefit plan obligation of $28.5 million as of
October 31, 2010 does not include the union-sponsored
multi-employer defined benefit plans. These plans are not
administered by the Company and contributions are determined in
accordance with provisions of negotiated labor contracts.
Contributions made to these plans were $58.2 million,
$47.9 million and $47.7 million in 2010, 2009 and
2008, respectively.
Line of
Credit
As of October 31, 2010, the total outstanding amount under
the old Facility in the form of cash borrowings was
$140.5 million. The old Facility was scheduled to expire on
November 14, 2012.
In connection with the acquisition of Linc, the Company
terminated the old Facility on November 30, 2010 and
replaced it with the new Facility. The new Facility is scheduled
to expire on November 30, 2015. See Note 16 of the
Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data, for additional information.
Standby Letters
of Credit
The Company had $100.8 million of standby letters of credit
as of October 31, 2010, primarily related to its general
liability, automobile, property damage, and workers
compensation self-insurance programs.
In connection with the Linc acquisition on December 1,
2010, the Company acquired $11.9 million of standby letters
of credit as of the acquisition date.
Surety
Bonds
The Company uses surety bonds, principally performance and
payment bonds, to guarantee performance under various client
contracts in the normal course of business. These bonds
typically remain in force for one to five years and may include
optional renewal periods. At October 31, 2010, outstanding
surety bonds totaled $112.5 million. The Company does not
believe it will be required to draw upon these bonds.
In connection with the Linc acquisition on December 1,
2010, the Company acquired $98.4 million of outstanding
surety bonds as of the acquisition date.
Unrecognized Tax
Benefits
As of October 31, 2010, the Company had $101.7 million
of unrecognized tax benefits. This
25
represents the tax benefits associated with various tax
positions taken on tax returns that have not been recognized in
our financial statements due to uncertainty regarding their
resolution. The resolution or settlement of these tax positions
with the taxing authorities is subject to significant
uncertainty, and therefore we are unable to make a reliable
estimate of the eventual cash flows by period that may be
required to settle these matters. In addition, certain of these
matters may not require cash settlements due to the exercise of
credit and net operating loss carryforwards as well as other
offsets, including the indirect benefit from other taxing
jurisdictions that may be available. (See Note 13 of the
Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data.)
Environmental
Matters
The Companys 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 Companys operations. In addition,
from time to time the Company is involved in environmental
matters at certain of its locations or in connection with its
operations. Historically, the cost of complying with
environmental laws or resolving environmental issues relating to
United States locations or operations has not had a material
adverse effect on the Companys financial position, results
of operations or cash flows. The Company does not believe that
the resolution of known matters at this time will be material.
Effect of
Inflation
The 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 prices
for its services, to the extent permitted by contracts and
competition.
Results of
Operations
COMPARISON OF 2010
TO 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Increase
|
|
|
Increase
|
|
|
|
October 31,
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
($ in thousands)
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,495,747
|
|
|
$
|
3,481,823
|
|
|
$
|
13,924
|
|
|
|
0.4
|
%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
3,134,018
|
|
|
|
3,114,699
|
|
|
|
19,319
|
|
|
|
0.6
|
%
|
Selling, general and administrative
|
|
|
241,526
|
|
|
|
263,633
|
|
|
|
(22,107
|
)
|
|
|
(8.4
|
)%
|
Amortization of intangible assets
|
|
|
11,364
|
|
|
|
11,384
|
|
|
|
(20
|
)
|
|
|
(0.2
|
)%
|
|
|
Total expense
|
|
|
3,386,908
|
|
|
|
3,389,716
|
|
|
|
(2,808
|
)
|
|
|
(0.1
|
)%
|
|
|
Operating profit
|
|
|
108,839
|
|
|
|
92,107
|
|
|
|
16,732
|
|
|
|
18.2
|
%
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
3,695
|
|
|
|
(3,695
|
)
|
|
|
NM
|
*
|
OTTI recognized in earnings (other comprehensive income)
|
|
|
127
|
|
|
|
(2,129
|
)
|
|
|
2,256
|
|
|
|
NM
|
*
|
Interest expense
|
|
|
4,639
|
|
|
|
5,881
|
|
|
|
(1,242
|
)
|
|
|
(21.1
|
)%
|
|
|
Income from continuing operations before income taxes
|
|
|
104,073
|
|
|
|
84,660
|
|
|
|
19,413
|
|
|
|
22.9
|
%
|
Provision for income taxes
|
|
|
40,203
|
|
|
|
29,170
|
|
|
|
11,033
|
|
|
|
37.8
|
%
|
|
|
Income from continuing operations
|
|
|
63,870
|
|
|
|
55,490
|
|
|
|
8,380
|
|
|
|
15.1
|
%
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
1,448
|
|
|
|
NM
|
*
|
|
|
Net income
|
|
$
|
64,121
|
|
|
$
|
54,293
|
|
|
$
|
9,828
|
|
|
|
18.1
|
%
|
|
|
Net Income. Net income in 2010 increased by
$9.8 million, or 18.1%, to $64.1 million ($1.21 per
diluted share) from $54.3 million ($1.05 per diluted share)
in 2009. Net income included income from discontinued operations
of $0.3 million and a loss from discontinued operations of
$1.2 million ($0.02 per diluted share) in 2010 and 2009,
respectively.
Income from Continuing Operations. Income from
continuing operations in 2010 increased by $8.4 million, or
15.1%, to $63.9 million ($1.21 per diluted share) from
$55.5 million ($1.07 per diluted share) in 2009.
The increase in income from continuing operations was primarily
related to:
|
|
|
|
|
a $10.7 million
year-over-year
decrease in information technology costs in 2010, primarily
related to the upgrade of the payroll, human resources and
accounting systems that occurred in 2009;
|
|
|
|
a $1.2 million adjustment to increase the self-insurance
reserves related to prior year claims in 2010, compared to
$9.4 million in 2009 (accordingly, the
year-over-year
decrease in the self-insurance reserve adjustments resulted in
an $8.2 million increase in income from continued
operations before income taxes in 2010 as compared to 2009);
|
|
|
|
a $5.1 million increase in operating profit, excluding the
Corporate segment, primarily related to cost control measures
and increases in the operating profit in the Parking and
Engineering segments as a result of increases in
|
26
|
|
|
|
|
revenues from new clients and the expansion of services to
existing clients;
|
|
|
|
|
|
a $4.1 million decrease in general and administrative
expenses in 2010, primarily related to professional fees and
costs associated with the move of the Companys corporate
headquarters to New York incurred during 2009 and decreases in
costs associated with the centralization of certain back office
support services;
|
|
|
|
a $3.4 million reversal of previously recorded share-based
compensation expense in 2010, due to a change in the probability
assessment of achieving the financial performance targets
established in connection with certain performance share grants;
|
|
|
|
a $1.4 million
year-over-year
decrease in the credit loss associated with the
other-than-temporary
impairment of the Companys investment in auction rate
securities in 2010; and
|
|
|
|
a $1.2 million decrease in interest expense as a result of
a lower average outstanding balance and lower average interest
rate under the line of credit;
|
partially offset by:
|
|
|
|
|
an $11.0 million increase in income taxes, primarily
related to the increase in income from continuing operations
before income taxes and a $4.6 million
year-over-year
decrease of non-recurring tax benefits;
|
|
|
|
the absence of a $9.6 million net gain related to a legal
settlement for a claim that was settled and resolved in 2009;
|
|
|
|
a $5.8 million litigation settlement related to the Morales
case; and
|
|
|
|
the expensing of acquisition costs of $2.3 million, in
2010, subsequent to the adoption of ASC 805 on
November 1, 2009.
|
Revenues. Total revenues increased
$13.9 million, or 0.4%, in 2010, as compared to 2009. The
Companys growth in total revenues includes approximately
$43.0 million of revenues attributable to the L&R and
Diversco acquisitions described above. Excluding the L&R
and Diversco acquisitions, revenues decreased
$29.1 million, or 0.8%, in 2010, as compared to 2009.
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 throughout
2010. In addition, during 2010 the Janitorial segment continued
to experience some additional reductions in the level and scope
of client services and contract price compression. These revenue
decreases in the Janitorial segment were partially offset by
additional revenues from new clients and the expansion of
services to existing clients in the Engineering segment.
Operating Expenses. As a percentage of
revenues, gross margin was 10.3% and 10.5% in 2010 and 2009,
respectively.
The gross margin percentages were affected by the following:
|
|
|
|
|
a $9.6 million net gain related to a legal settlement for a
claim that was settled and resolved in 2009; and
|
|
|
|
a $1.2 million adjustment to increase the self-insurance
reserves related to prior year claims in 2010, compared to
$9.4 million in 2009.
|
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses decreased $22.1 million, or 8.4%, in 2010 compared
to 2009.
The decrease in selling, general and administrative expenses was
primarily related to:
|
|
|
|
|
a $12.8 million decrease in selling, general and
administrative costs at the Janitorial segment, primarily
related to cost control measures, including a reduction in
payroll and payroll related expenses;
|
|
|
|
a $10.7 million
year-over-year
decrease in information technology costs in 2010, primarily
related to the upgrade of the payroll, human resources and
accounting systems that occurred in 2009;
|
|
|
|
a $4.1 million decrease in general and administrative
expenses in 2010, primarily related to professional fees and
costs associated with the move of the Companys corporate
headquarters to New York incurred during 2009 and decreases in
costs associated with the centralization of certain back office
support services; and
|
|
|
|
a $3.4 million reversal of previously recorded share-based
compensation expense in 2010, due to a change in the probability
assessment of achieving the financial performance targets
established in connection with certain performance share grants;
|
27
partially offset by:
|
|
|
|
|
a $5.8 million litigation settlement related to the Morales
case; and
|
|
|
|
the expensing of acquisition costs of $2.3 million in 2010,
subsequent to the adoption of ASC 805 on November 1,
2009.
|
Interest Expense. Interest expense in 2010
decreased $1.2 million, or 21.1%, to $4.6 million from
$5.9 million in 2009. The decrease was primarily related to
a lower average outstanding balance and a lower average interest
rate under the line of credit in 2010 compared to 2009. The
average outstanding balance under the Companys line of
credit was $156.7 million and $212.9 million in 2010
and 2009, respectively.
Provision for Income Taxes. The effective tax
rates on income from continuing operations for 2010 and 2009
were 38.6% and 34.5%, respectively. The effective tax rates for
2010 and 2009 include $0.2 million of discrete tax costs
and $4.4 million of discrete tax benefits, respectively.
The tax benefits in 2009 were principally driven by the benefits
of state tax rate increases on the carrying value of the
Companys state deferred tax assets and employment based
tax credits.
Segment
Information
The Company determined Janitorial, Parking, Security and
Engineering to be its reporting segments in accordance with
Accounting Standards
Codificationtm
(ASC) Topic 280 Segment Reporting
(ASC 280). In connection with the discontinued
operation of the Lighting segment, the operating results of
Lighting are classified as discontinued operations and, as such,
are not reflected in the tables below.
Most Corporate expenses are not allocated. Such expenses include
the adjustments to the Companys self-insurance reserves
relating to prior years, certain legal costs and settlements,
certain information technology costs, share-based compensation
costs, severance costs associated with acquisitions and certain
chief executive officer and other finance and human resource
departmental costs. Segment Revenues and operating profits of
the continuing reportable operating segments (Janitorial,
Parking, Security, and Engineering) for 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
Increase
|
|
|
|
Years Ended October 31,
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
($ in thousands)
|
|
2010
|
|
|
2009
|
|
|
$
|
|
|
%
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
2,337,940
|
|
|
$
|
2,382,025
|
|
|
$
|
(44,085
|
)
|
|
|
(1.9
|
)%
|
Parking
|
|
|
469,398
|
|
|
|
457,477
|
|
|
|
11,921
|
|
|
|
2.6
|
%
|
Security
|
|
|
336,249
|
|
|
|
334,610
|
|
|
|
1,639
|
|
|
|
0.5
|
%
|
Engineering
|
|
|
350,787
|
|
|
|
305,694
|
|
|
|
45,093
|
|
|
|
14.8
|
%
|
Corporate
|
|
|
1,373
|
|
|
|
2,017
|
|
|
|
(644
|
)
|
|
|
(31.9
|
)%
|
|
|
|
|
$
|
3,495,747
|
|
|
$
|
3,481,823
|
|
|
$
|
13,924
|
|
|
|
0.4
|
%
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
140,983
|
|
|
$
|
139,858
|
|
|
$
|
1,125
|
|
|
|
0.8
|
%
|
Parking
|
|
|
22,738
|
|
|
|
20,285
|
|
|
|
2,453
|
|
|
|
12.1
|
%
|
Security
|
|
|
7,487
|
|
|
|
8,221
|
|
|
|
(734
|
)
|
|
|
(8.9
|
)%
|
Engineering
|
|
|
21,955
|
|
|
|
19,658
|
|
|
|
2,297
|
|
|
|
11.7
|
%
|
Corporate
|
|
|
(84,324
|
)
|
|
|
(95,915
|
)
|
|
|
11,591
|
|
|
|
12.1
|
%
|
|
|
Operating profit
|
|
|
108,839
|
|
|
|
92,107
|
|
|
|
16,732
|
|
|
|
18.2
|
%
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
3,695
|
|
|
|
(3,695
|
)
|
|
|
NM
|
*
|
OTTI recognized in earnings (other comprehensive income)
|
|
|
127
|
|
|
|
(2,129
|
)
|
|
|
2,256
|
|
|
|
NM
|
*
|
Interest expense
|
|
|
4,639
|
|
|
|
5,881
|
|
|
|
(1,242
|
)
|
|
|
(21.1
|
)%
|
|
|
Income from continuing operations before income taxes
|
|
$
|
104,073
|
|
|
$
|
84,660
|
|
|
$
|
19,413
|
|
|
|
22.9
|
%
|
|
|
Janitorial. Janitorial revenues decreased
$44.1 million, or 1.9%, during 2010 compared to 2009.
Excluding the revenues associated with the Diversco acquisition,
Janitorial revenues decreased $68.1 million, or 2.9%, during
2010, as compared to 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 throughout 2010. In addition,
during 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, partially offset by additional revenues from new
clients.
Despite the reduction in revenues, operating profit increased
$1.1 million, or 0.8%, during 2010 compared to 2009. The
increase was primarily related to cost control measures,
including a reduction in payroll and payroll related expenses,
and $1.1 million of operating profit contributed by the
Diversco acquisition.
Parking. Parking revenues increased
$11.9 million, or 2.6%, during 2010 compared to 2009.
Excluding the revenues associated with the L&R acquisition,
Parking revenues decreased $3.0 million, or 0.7%. The
decrease in revenues, excluding the L&R acquisition, was
primarily related to a $5.7 million reduction of expenses
incurred on the behalf of managed parking facilities,
28
which are reimbursed to the Company. These reimbursed expenses
are recognized as parking revenues and expenses, which have no
impact on operating profit. The decrease in management
reimbursement revenues was offset by a $2.7 million
increase in lease and allowance revenues from new clients and
the expansion of services to existing clients.
Operating profit increased $2.5 million, or 12.1%, during
2010 compared to 2009. The increase was primarily related to the
increase in lease and allowance revenues, cost control measures
and $0.4 million contributed by the L&R acquisition.
Security. Security revenues increased
$1.6 million, or 0.5%, during 2010 compared to 2009.
Excluding the revenues associated with the Diversco acquisition,
Security revenues decreased $2.4 million, or 0.7%. 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.
Operating profit decreased $0.7 million, or 8.9%, in 2010
compared to 2009. The decrease was primarily related to margin
compression.
Engineering. Engineering revenues increased
$45.1 million, or 14.8%, during 2010 compared to 2009. The
increase was primarily related to additional revenues from new
clients and the expansion of services to existing clients.
Operating profit increased by $2.3 million, or 11.7%, in
2010 compared to 2009, primarily related to the increase in
revenues.
Corporate. Corporate expense decreased
$11.6 million, or 12.1%, in 2010 compared to 2009.
The decrease in Corporate expense was primarily related to:
|
|
|
|
|
a $10.7 million
year-over-year
decrease in information technology costs in 2010, primarily
related to the upgrade of the payroll, human resources and
accounting systems that occurred in 2009;
|
|
|
|
a $1.2 million adjustment to increase the self-insurance
reserves related to prior year claims in 2010, compared to
$9.4 million in 2009 (accordingly, the
year-over-year
decrease in the self-insurance reserve adjustments resulted in
an $8.2 million decrease in Corporate expenses in 2010 as
compared to 2009);
|
|
|
|
a $4.1 million decrease in general and administrative
expenses in 2010, primarily related to professional fees and
costs associated with the move of the Companys corporate
headquarters to New York incurred during 2009 and decreases in
costs associated with the centralization of certain back office
support services; and
|
|
|
|
a $3.4 million reversal of previously recorded share-based
compensation expense in 2010, due to a change in the probability
assessment of achieving the financial performance targets
established in connection with certain performance share grants;
|
partially offset by:
|
|
|
|
|
the absence of a $9.6 million net gain related to a legal
settlement for a claim that was settled and resolved in 2009;
|
|
|
|
a $5.8 million litigation settlement related to the Morales
case; and
|
|
|
|
the expensing of acquisition costs of $2.3 million in 2010,
subsequent to the adoption of ASC 805 on November 1,
2009.
|
COMPARISON OF 2009
TO 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Increase
|
|
|
Increase
|
|
|
|
October 31,
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
($ in thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,481,823
|
|
|
$
|
3,623,590
|
|
|
$
|
(141,767
|
)
|
|
|
(3.9
|
)%
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
3,114,699
|
|
|
|
3,224,696
|
|
|
|
(109,997
|
)
|
|
|
(3.4
|
)%
|
Selling, general and administrative
|
|
|
263,633
|
|
|
|
287,650
|
|
|
|
(24,017
|
)
|
|
|
(8.3
|
)%
|
Amortization of intangible assets
|
|
|
11,384
|
|
|
|
11,735
|
|
|
|
(351
|
)
|
|
|
(3.0
|
)%
|
|
|
Total expense
|
|
|
3,389,716
|
|
|
|
3,524,081
|
|
|
|
(134,365
|
)
|
|
|
(3.8
|
)%
|
|
|
Operating profit
|
|
|
92,107
|
|
|
|
99,509
|
|
|
|
(7,402
|
)
|
|
|
(7.4
|
)%
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
3,695
|
|
|
|
|
|
|
|
3,695
|
|
|
|
NM
|
*
|
OTTI recognized in other comprehensive income
|
|
|
(2,129
|
)
|
|
|
|
|
|
|
(2,129
|
)
|
|
|
NM
|
*
|
Interest expense
|
|
|
5,881
|
|
|
|
15,193
|
|
|
|
(9,312
|
)
|
|
|
(61.3
|
)%
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
|
|
84,660
|
|
|
|
84,316
|
|
|
|
344
|
|
|
|
0.4
|
%
|
Provision for income taxes
|
|
|
29,170
|
|
|
|
31,585
|
|
|
|
(2,415
|
)
|
|
|
(7.6
|
)%
|
|
|
Income from continuing operations
|
|
|
55,490
|
|
|
|
52,731
|
|
|
|
2,759
|
|
|
|
5.2
|
%
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(1,197
|
)
|
|
|
(3,776
|
)
|
|
|
2,579
|
|
|
|
NM
|
*
|
Loss on sale of discontinued operations, net of taxes
|
|
|
|
|
|
|
(3,521
|
)
|
|
|
3,521
|
|
|
|
NM
|
*
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(1,197
|
)
|
|
|
(7,297
|
)
|
|
|
6,100
|
|
|
|
NM
|
*
|
|
|
Net income
|
|
$
|
54,293
|
|
|
$
|
45,434
|
|
|
$
|
8,859
|
|
|
|
19.5
|
%
|
|
|
Net Income. Net income in 2009 increased by
$8.9 million, or 19.5%, to $54.3 million ($1.05 per
diluted
29
share) from $45.4 million ($0.88 per diluted share) in
2008. Net income included a loss from discontinued operations of
$1.2 million ($0.02 per diluted share) and
$7.3 million ($0.15 per diluted share) in 2009 and 2008,
respectively. The loss from discontinued operations in 2008 is
primarily related to a pre-tax goodwill impairment charge of
$4.5 million and a $3.5 million loss, net of taxes, on
the sale of substantially all the assets of the Lighting segment.
Income from Continuing Operations. Income from
continuing operations in 2009 increased by $2.8 million, or
5.2%, to $55.5 million ($1.07 per diluted share) from
$52.7 million ($1.03 per diluted share) in 2008.
The increase in income from continuing operations was primarily
related to:
|
|
|
|
|
a $23.2 million increase in operating profit, excluding the
Corporate segment, primarily resulting from cost control
measures and lower labor expenses relating to two less working
days in 2009;
|
|
|
|
a $9.6 million net gain related to a legal settlement for a
claim that was settled and resolved in 2009;
|
|
|
|
a $9.3 million decrease in interest expense as a result of
a lower average outstanding balance and a lower average interest
rate under the line of credit;
|
|
|
|
a $6.3 million write-off of the deferred costs related to
the IBM Master Professional Services Agreement and a
$1.5 million charge associated with a legal claim, both of
which were recorded in 2008;
|
|
|
|
a $2.4 million decrease in expenses associated with the
integration of OneSources operations; and
|
|
|
|
a $2.4 million decrease in income taxes primarily due to a
$3.5 million
year-over-year
increase of discrete tax benefits;
|
partially offset by:
|
|
|
|
|
a $9.4 million adjustment to increase the self-insurance
reserves related to prior year claims recorded in 2009 compared
to a $22.8 million adjustment to reduce self-insurance
reserves related to prior years recorded in 2008 (accordingly,
the
year-over-year
change in the self-insurance reserve adjustments resulted in a
decrease in income from continuing operations before income
taxes of $32.2 million in 2009 as compared to 2008);
|
|
|
|
a $12.2 million increase in information technology costs,
including higher depreciation costs related to the upgrade of
the payroll, human resources and accounting systems;
|
|
|
|
a $6.5 million increase in professional fees, payroll and
payroll related costs, and costs associated with the
centralization of certain back office support functions; and
|
|
|
|
a $1.6 million credit loss associated with the
other-than-temporary
impairment of the Companys investment in auction rate
securities.
|
Revenues. Revenues in 2009 decreased
$141.8 million, or 3.9%, to $3,481.8 million from
$3,623.6 million in 2008. The Company and its clients
continued to feel the negative impact of the weak economic
environment which resulted in reductions in the level and scope
of services provided to clients, contract price compression, the
reduction of less profitable client contracts, loss of client
contracts and a decline in the level of tag work as a result of
decreases in client discretionary spending. However,
approximately $22.8 million, or 16.1%, of the decrease in
revenues was due to the reduction of expenses incurred on the
behalf of managed parking facilities, which were reimbursed to
the Company. These reimbursed expenses were recognized as
parking revenues and expenses and had no impact on operating
profit.
Operating Expenses. As a percentage of
revenues, gross margin was 10.5% and 11.0% in 2009 and 2008,
respectively.
The gross margin percentages were affected by the following:
|
|
|
|
|
a $9.4 million adjustment to increase the self-insurance
reserves related to prior year claims recorded in 2009 compared
to a $22.8 million adjustment to reduce self-insurance
reserves related to prior years recorded in 2008 (accordingly,
the
year-over-year
change in the self-insurance reserve adjustments resulted in a
decrease in income from continuing operations before income
taxes of $32.2 million in 2009 as compared to
2008); and
|
|
|
|
a $9.6 million net gain related to a legal settlement for a
claim that was settled and resolved in 2009.
|
30
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses in 2009 decreased $24.0 million, or 8.3%, to
$263.6 million from $287.6 million in 2008.
The decrease in selling, general and administrative expenses was
primarily related to:
|
|
|
|
|
a $28.7 million decrease in selling, general and
administrative costs at the Janitorial segment, primarily
attributable to cost control measures;
|
|
|
|
the absence of a $6.3 million write-off of the deferred
costs related to the IBM Professional Services Agreement and a
$1.5 million charge associated with a legal claim, which
were recorded in 2008; and
|
|
|
|
a $2.4 million decrease in expenses associated with the
integration of OneSources operations;
|
partially offset by:
|
|
|
|
|
a $12.2 million increase in information technology costs,
including higher depreciation costs related to the upgrade of
the payroll, human resources and accounting systems; and
|
|
|
|
a $6.5 million increase in professional fees, payroll and
payroll related costs, and costs associated with the
centralization of certain back office support functions.
|
Interest Expense. Interest expense in 2009
decreased $9.3 million, or 61.3%, to $5.9 million from
$15.2 million in 2008. The decrease was primarily related
to a lower average outstanding balance and a lower average
interest rate under the line of credit in 2009 compared to 2008.
The average outstanding balance under the Companys line of
credit was $212.9 million and $294.4 million in 2009
and 2008, respectively.
Provision for Income Taxes. The effective tax
rate on income from continuing operations for 2009 was 34.5%,
compared to 37.5% for 2008. The effective tax rates for 2009 and
2008 include $4.4 million and $0.9 million of discrete
tax benefits, respectively. These tax benefits include the
benefits of state tax rate increases on the carrying value of
the Companys state deferred tax assets and employment
based tax credits.
Discontinued Operations. The Company recorded
a loss from discontinued operations of $1.7 million
($1.2 million, net of income tax benefits), or $0.02 per
diluted share, in 2009. The losses recorded were due to
severance related costs and general and administrative
transition costs. The effective tax rate on the loss from
discontinued operations for 2009 was 30.6%, compared to 6.8% for
2008.
Segment
Information
The Company determined Janitorial, Parking, Security and
Engineering to be its reporting segments in accordance with
ASC 280. In connection with the discontinued operation of
the Lighting segment, the operating results of Lighting are
classified as discontinued operations and, as such, are not
reflected in the tables below.
Most Corporate expenses are not allocated. Such expenses include
the adjustments to the Companys self-insurance reserves
relating to prior years, certain legal costs and settlements,
certain information technology costs, share-based compensation
costs, severance costs associated with acquisitions and certain
chief executive officer and other finance and human resource
departmental costs. Segment Revenues and operating profits of
the continuing reportable segments (Janitorial, Parking,
Security, and Engineering) for 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
Increase
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
($ in thousands)
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
2,382,025
|
|
|
$
|
2,492,270
|
|
|
$
|
(110,245
|
)
|
|
|
(4.4
|
)%
|
Parking
|
|
|
457,477
|
|
|
|
475,349
|
|
|
|
(17,872
|
)
|
|
|
(3.8
|
)%
|
Security
|
|
|
334,610
|
|
|
|
333,525
|
|
|
|
1,085
|
|
|
|
0.3
|
%
|
Engineering
|
|
|
305,694
|
|
|
|
319,847
|
|
|
|
(14,153
|
)
|
|
|
(4.4
|
)%
|
Corporate
|
|
|
2,017
|
|
|
|
2,599
|
|
|
|
(582
|
)
|
|
|
(22.4
|
)%
|
|
|
|
|
$
|
3,481,823
|
|
|
$
|
3,623,590
|
|
|
$
|
(141,767
|
)
|
|
|
(3.9
|
)%
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
139,858
|
|
|
$
|
118,538
|
|
|
$
|
21,320
|
|
|
|
18.0
|
%
|
Parking
|
|
|
20,285
|
|
|
|
19,438
|
|
|
|
847
|
|
|
|
4.4
|
%
|
Security
|
|
|
8,221
|
|
|
|
7,723
|
|
|
|
498
|
|
|
|
6.4
|
%
|
Engineering
|
|
|
19,658
|
|
|
|
19,129
|
|
|
|
529
|
|
|
|
2.8
|
%
|
Corporate
|
|
|
(95,915
|
)
|
|
|
(65,319
|
)
|
|
|
(30,596
|
)
|
|
|
(46.8
|
)%
|
|
|
Operating profit
|
|
|
92,107
|
|
|
|
99,509
|
|
|
|
(7,402
|
)
|
|
|
(7.4
|
)%
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
3,695
|
|
|
|
|
|
|
|
3,695
|
|
|
|
NM
|
*
|
OTTI recognized in other comprehensive income
|
|
|
(2,129
|
)
|
|
|
|
|
|
|
(2,129
|
)
|
|
|
NM
|
*
|
Interest expense
|
|
|
5,881
|
|
|
|
15,193
|
|
|
|
(9,312
|
)
|
|
|
(61.3
|
)%
|
|
|
Income from continuing operations before income taxes
|
|
$
|
84,660
|
|
|
$
|
84,316
|
|
|
$
|
344
|
|
|
|
0.4
|
%
|
|
|
Janitorial. Janitorial revenues decreased
$110.2 million, or 4.4%, during 2009 compared to 2008. The
decrease in revenues was primarily related to reductions in the
level and scope of services provided to
31
clients, contract price compression, loss of client contracts
and a decline in the level of tag work as a result of decreases
in client discretionary spending.
Despite the reductions in revenue, operating profit increased
$21.3 million, or 18.0%, during 2009 compared to 2008. The
increase was primarily related to cost control measures and
lower labor expenses resulting from two less working days in
2009 compared to 2008.
Parking. Parking revenues decreased
$17.9 million, or 3.8%, during 2009 compared to 2008. The
decrease was primarily a result of a $22.8 million
reduction of expenses incurred on the behalf of managed parking
facilities, which are reimbursed to the Company. These
reimbursed expenses are recognized as parking revenues and
expenses, which have no impact on operating profit. The decrease
in management reimbursement revenues was offset by a
$4.9 million increase in lease and allowance revenues from
new clients and an increased level of service to existing
clients.
Operating profit increased $0.8 million, or 4.4%, during
2009 compared to 2008. The increase was primarily related to
additional profit from the increase in lease and allowance
revenues and decreases in discretionary and overhead costs.
Security. Security revenues increased
$1.1 million, or 0.3%, during 2009 compared to 2008. The
increase in revenues was primarily related to additional
revenues from new clients and the expansion of services to
existing clients, partially offset by loss of certain client
contracts.
Operating profit increased $0.5 million, or 6.4%, during
2009 compared to 2008 primarily related to an increase in
revenues and a decrease in discretionary and overhead costs,
partially offset by loss of certain client contracts.
Engineering. Engineering revenues decreased
$14.2 million, or 4.4%, during 2009 compared to 2008,
primarily related to the loss of client contracts, principally
those with low gross profit margins, and the effects of two less
working days in 2009 compared to 2008.
Despite the reduction in revenues, operating profit increased
$0.5 million, or 2.8%, during 2009 compared to 2008,
primarily related to higher margins generated from contracts
with new clients and decreases in discretionary and overhead
costs.
Corporate. Corporate expense increased
$30.6 million, or 46.8%, during 2009 compared to 2008.
The increase in Corporate expense was primarily related to:
|
|
|
|
|
a $9.4 million adjustment to increase the self-insurance
reserves related to prior year claims recorded in 2009 compared
to a $22.8 million adjustment to reduce self-insurance
reserves related to prior years recorded in 2008 (accordingly,
the
year-over-year
change in the self-insurance reserve adjustments resulted in a
decrease in income from continuing operations before income
taxes of $32.2 million in 2009 as compared to 2008);
|
|
|
|
a $12.2 million increase in information technology costs,
including higher depreciation costs related to the upgrade of
the payroll, human resources and accounting systems; and
|
|
|
|
a $6.5 million increase in professional fees, payroll and
payroll related costs, and costs associated with the
centralization of certain back office support functions;
|
partially offset by:
|
|
|
|
|
a $9.6 million net legal gain related to a legal settlement
for a claim that was settled and resolved in 2009;
|
|
|
|
a $6.3 million write-off of the deferred costs related to
the IBM Master Professional Services Agreement and a
$1.5 million charge associated with a legal claim, both of
which were recorded in 2008; and
|
|
|
|
a $2.4 million decrease in expenses associated with the
integration of OneSources operations.
|
Adoption of
Accounting Standards
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 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
then being pursued. In addition, during 2010 the Company
incurred an additional $1.3 million of acquisition costs
related to the acquisitions of L&R and Diversco and other
acquisitions currently being pursued.
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
32
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. This authoritative standard
must be applied prospectively to all intangible assets
recognized as of the effective date. This authoritative standard
had no impact on the Companys consolidated financial
statements, but could impact the way in which the useful lives
of intangible assets acquired in business combinations will be
determined, 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 requiring additional
disclosures about how investment allocation decisions are made
by management, major categories of plan assets and significant
concentrations of risk. Additionally, an employer is now
required to disclose information about the valuation of plan
assets similar to the disclosure required under ASC Topic 820
Fair Value Measurements and Disclosures (ASC
820). This authoritative standard did not have an impact
on the Companys consolidated financial statements as it
only amended required annual disclosures. See Note 10 of
the Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data, for the required 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
Companys non-financial assets and non-financial
liabilities principally consist of intangible assets acquired
through business combinations and long-lived assets. During
2010, the Company did not re-measure any non-financial assets or
non-financial liabilities to fair value, therefore, this
authoritative standard did not have any impact on the
Companys consolidated financial statements.
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
non-recurring 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 during 2010 and the required additional disclosures
had no impact on the Companys financial position or
results of operations. See Notes 4 and 5 of the Notes to
the Consolidated Financial Statements contained in Item 8,
Financial Statements and Supplementary Data, for the
required disclosures.
Critical
Accounting Policies and Estimates
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, the
Company evaluates its estimates, including those related to
self-insurance reserves, allowance for doubtful accounts, sales
allowances, deferred income tax assets and valuation allowances,
estimates of useful lives of intangible assets, impairment of
goodwill and other intangibles, fair value of auction rate
securities, cash flow forecasts, share-based compensation
expense, and contingencies and litigation liabilities. The
Company bases its estimates on historical experience, known or
expected trends, independent valuations and various other
assumptions that are believed to be reasonable under the
circumstances based on information available as of the date of
the issuance of these financial statements. The results of such
assumptions form the basis for making estimates about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The current economic environment
and its potential effect on the Company and its clients have
combined to increase the uncertainty inherent in such estimates
and assumptions. Future results could be significantly affected
if actual results were to be different from these estimates and
assumptions.
33
The Company believes the following critical accounting policies
govern its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Investments in Auction Rate Securities. The
Company considers its investments in auction rate securities as
available for sale. Accordingly, auction rate
securities are presented at fair value with changes in fair
value recorded within other comprehensive income, unless a
decline in fair value is determined to be
other-than-temporary.
The credit loss component of an
other-than-temporary
decline in fair value is recorded in earnings in the period
identified. Fair value is estimated by considering, among other
factors, assumptions about: (1) the underlying collateral;
(2) credit risks associated with the issuer;
(3) contractual maturity; (4) credit enhancements
associated with any financial insurance guarantee, if any; and
(5) assumptions about when, if ever, the security might be
re-financed by the issuer or have a successful auction.
The Companys 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 Companys intent to not sell the
securities; (2) the Companys 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. The Companys
determination of whether an
other-than-temporary
impairment represents a credit loss is calculated by evaluating
the difference between the present value of the cash flows
expected to be collected and the securitys amortized cost
basis. Significant assumptions used in estimating credit losses
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 Companys view of when
market efficiencies for securities may be restored).
Revenue Recognition. The Company earns
revenues primarily under service contracts that are either fixed
price, cost-plus or time and materials based. Revenues are
recognized when earned, normally when services are performed. In
all forms of service provided by the Company, revenue
recognition follows the guidelines under Staff Accounting
Bulletin (SAB) No. 104, unless another form of
guidance takes precedence over SAB No. 104. Revenues
are reported net of applicable sales and use tax imposed on the
related transaction.
The Janitorial segment primarily earns revenues from the
following types of arrangements: fixed price, cost-plus, and tag
(extra service) work. Fixed price arrangements are contracts in
which the client agrees to pay a fixed fee every month over the
specified contract term. A variation of a fixed price
arrangement is a square-foot arrangement. Square-foot
arrangements are ones in which monthly billings are fixed,
however, the client is given a credit calculated based on vacant
square footage that is not serviced. Cost-plus arrangements are
ones in which the client agrees to reimburse the Company for the
agreed upon amount of wages and benefits, payroll taxes,
insurance charges and other expenses plus a profit percentage.
Tag revenues are additional services requested by the client
outside of the standard contract terms. This work is usually
performed on short notice due to unforeseen events. The
Janitorial segment recognizes revenues on each type of
arrangement when services are performed.
The Parking segment earns revenues from parking and
transportation services. There are three types of arrangements
for parking services: managed lot, leased lot and allowance
arrangements. Under managed lot arrangements, the Company
manages the parking lot for the owner in exchange for a
management fee. The revenues and expenses are passed through by
the Company to the owner under the terms and conditions of the
management contract. The management fee revenues are recognized
when services are performed. The Company reports revenues and
expenses, in equal amounts, for costs directly reimbursed from
its managed parking lot clients. Such amounts totaled
$231.5 million, $231.0 million and $253.7 million
in 2010, 2009 and 2008, respectively. Under leased lot
arrangements, the Company leases the parking lot from the owner
and is responsible for all expenses incurred, retains all
revenues from monthly and transient parkers, and pays rent to
the owner per the terms and conditions of the lease. Revenues
are recognized when services are performed. Under allowance
arrangements, the Company is paid a fixed or hourly fee to
provide parking
and/or
transportation services. The Company is then responsible for
34
operating expenses. Revenues are recognized when services are
performed.
The Security segment primarily performs scheduled post
assignments under one-year service arrangements. Security
services for special events are generally performed under
temporary service agreements. Scheduled post assignments and
temporary service agreements are billed based on actual hours of
service at contractually specified rates. Revenues for both
types of arrangements are recognized when services are performed.
The Engineering segment provides services primarily under
cost-plus arrangements in which the client agrees to reimburse
the Company for the full amount of wages, payroll taxes,
insurance charges and other expenses plus a profit percentage.
Revenues are recognized for these contracts when services are
performed.
Self-Insurance Reserves. The Company is
subject to certain insurable risks, such as workers
compensation, general liability, automobile and property damage.
The Company maintains commercial insurance policies that provide
$150.0 million (or $75.0 million with respect to
claims acquired from OneSource in 2008) of coverage for
certain risk exposures above the Companys deductibles
(i.e., self-insurance retention limits). The Companys
deductibles, currently and historically, have generally ranged
from $0.5 million to $1.0 million per occurrence (in
some cases somewhat higher in California). The Company is also
responsible for claims in excess of its insurance coverage.
Pursuant to some of the Companys management and service
contracts, the Company allocates a portion of its
insurance-related costs to certain clients, including
workers compensation insurance. A material change in the
Companys insurance costs due to a change in the number of
claims, costs or premiums, or changes in laws or other factors
could have a material effect on operating results. Should the
Company be unable to renew its umbrella and other commercial
insurance policies at competitive rates, it would have an
adverse impact on the Companys business, as would the
incurrence of catastrophic uninsured claims or the inability or
refusal of the insurance carriers to pay otherwise insured
claims. Further, to the extent the Company self-insures,
deterioration in claims management could increase claim costs.
Additionally, although the Company engages third-party experts
to assist in estimating appropriate self-insurance accounting
reserves, the determination of those reserves is dependent upon
significant actuarial judgments that have a material impact on
the Companys reserves. Changes in the Companys
insurance reserves, as a result of periodic evaluations of the
related liabilities, will likely cause significant volatility in
the Companys operating results that might not be
indicative of the operations of the Companys ongoing
business.
Liabilities for claims under the Companys self-insurance
program are recorded on an undiscounted, claims-incurred basis.
Associated amounts that are expected to be recovered by
insurance are presented as insurance recoverables.
Assets and liabilities related to the Companys insurance
programs are classified based upon the timing of expected
payment or recovery. The Company allocates current-year
insurance expense to its operating segments based upon their
underlying exposures.
Trade Accounts
Receivable Allowances
Allowance for
Doubtful Accounts
Trade accounts receivable arise from services provided to the
Companys clients and are generally due and payable on
terms varying from receipt of the invoice to net thirty days.
The Company records an allowance for doubtful accounts to
provide for losses on accounts receivable due to a clients
inability to pay. The allowance is typically estimated based on
an analysis of the historical rate of credit losses or
write-offs (due to a client bankruptcy or failure of a former
client to pay), specific client concerns and known or expected
trends. Such analysis is inherently subjective. The
Companys earnings will be impacted in the future to the
extent that actual credit loss experience differs from amounts
estimated. Changes in the financial condition of the
Companys clients or adverse developments in negotiations
or legal proceedings to obtain payment could result in the
actual loss exceeding the estimated allowance. The Company does
not believe that it has any material exposure due to either
industry or regional concentrations of credit risk.
Sales
Allowance
Sales allowance is an estimate for losses on client receivables
resulting from client credits. Credits result from, among other
things, client vacancy discounts, job cancellations and property
damage. The sales allowance estimate is based on an analysis of
the historical rate of sales adjustments (credit memos, net of
re-bills) and considers known current or expected trends. Such
analysis is inherently subjective. The Companys earnings
will be impacted in the future to the extent that actual credit
experience differs from amounts estimated.
35
Long-Lived Assets Other Than Goodwill. The
Company reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable. When such events or changes in
circumstances occur, a recoverability test is performed
comparing projected undiscounted cash flows from the use and
eventual disposition of an asset or asset group to its carrying
amount. If the projected undiscounted cash flows are less than
the carrying amount, an impairment is recorded for the excess of
the carrying amount over the estimated fair value, which is
generally determined using discounted future cash flows.
The Companys intangible assets primarily consist of
acquired customer contracts and relationships. Acquired customer
relationship intangible assets are being amortized using the
sum-of-the-years-digits
method over their useful lives consistent with the estimated
useful life considerations used in the determination of their
fair values. The accelerated method of amortization reflects the
pattern in which the economic benefits of the customer
relationship intangible assets are expected to be realized.
Goodwill. Goodwill represents the excess of
costs over the fair value of net assets of acquired businesses.
The Company assesses impairment of goodwill at least annually as
of August 1 at the reporting unit level (which for the Company
is represented by each operating segment). The impairment test
is performed in two steps: (i) the Company determines
whether impairment exists by comparing the estimated fair value
of each reporting unit with its carrying amount; and
(ii) if an indication of impairment exists, the Company
measures the amount of impairment loss by comparing the implied
fair value of goodwill with its carrying amount. The estimated
fair value of each reporting unit was significantly in excess of
their respective carrying amounts as of the measurement date.
Income Taxes. The Companys deferred tax
assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets
and liabilities, and applying enacted tax rates expected to be
in effect for the year in which the differences are expected to
reverse. If management determines it is more-likely-than-not
that a portion of the Companys deferred tax assets will
not be realized, a valuation allowance is recorded. The
provision for income taxes is based on domestic (including
federal and state) and international statutory income tax rates
in the tax jurisdictions where the Company operates, permanent
differences between financial reporting and tax reporting, and
available credits and incentives. Interest and penalties related
to uncertain tax positions are recognized in income tax expense.
The U.S federal government is the Companys most
significant income tax jurisdiction.
Significant judgment is required in determining income tax
provisions and tax positions. The Company may be challenged upon
review by the applicable taxing authorities and positions taken
may not be sustained. All, or a portion of, the benefit of
income tax positions are recognized only when the Company has
made a determination that it is more-likely-than-not that the
tax position will be sustained upon examination, based upon the
technical merits of the position and other factors. For tax
positions that are determined as more-likely-than-not to be
sustained upon examination, the tax benefit recognized is the
largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. The development of
reserves for income tax positions requires consideration of
timing and judgments about tax issues and potential outcomes,
and is a subjective critical estimate. In certain circumstances,
the ultimate outcome of exposures and risks involves significant
uncertainties. If actual outcomes differ materially from these
estimates, they could have a material impact on the
Companys results of operations and financial condition.
Contingencies and Litigation. Loss
contingencies are recorded as liabilities when they are 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. If the Company believes that a
loss in litigation is not probable, then no liability will be
recorded unless the parties agree upon a settlement, which may
occur because the Company wishes to avoid the costs of
litigation. Expected costs of resolving contingencies, which
include the use of third-party service providers, are accrued as
the services are rendered.
36
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market Risk
Sensitive Instruments
The Companys primary market risk exposure is interest rate
risk. The potential impact of adverse increases in this risk is
discussed below. The following sensitivity analysis does not
consider the effects that an adverse change may have on the
overall economy nor does it consider actions the Company may
take to mitigate its exposure to these changes. Results of
changes in actual rates may differ materially from the following
hypothetical results.
Interest Rate
Risk
Line of
Credit
At October 31, 2010, the Companys exposure to
interest rate risk related primarily to its cash equivalents and
London Interbank Offered Rate (LIBOR) and Interbank
Offered Rate (IBOR) based borrowings under the old
Facility. At October 31, 2010, outstanding LIBOR and IBOR
based borrowings of $140.5 million represented 100% of the
Companys total debt obligations. A hypothetical 1%
increase or decrease in interest rates during 2010 on the
average outstanding borrowings under the old Facility, net of
the interest rate swap agreements, would have added to or
reduced interest expense by approximately $0.6 million in
2010.
In connection with the acquisition of Linc, the Company
terminated the old Facility on November 30, 2010 and
replaced it with the new Facility. The new Facility is scheduled
to expire on November 30, 2015. See Note 16 of the
Notes to the Consolidated Financial Statements contained in
Item 8, Financial Statements and Supplementary
Data, for additional information.
Interest Rate
Swaps
On February 19, 2009, the Company entered into a two-year
interest rate swap agreement with an underlying notional amount
of $100.0 million, pursuant to which the Company receives
variable interest payments based on LIBOR and pays fixed
interest at a rate of 1.47%.
On October 19, 2010, the Company entered into a three-year
forward starting interest rate swap agreement with an underlying
notional amount of $25.0 million, pursuant to which the
Company receives variable interest payments based on LIBOR and
pays fixed interest at a rate of 0.89%. The effective date of
the hedge is February 24, 2011.
These swaps are intended to hedge the interest risk associated
with the Companys forecasted floating-rate, LIBOR-based
debt. As of October 31, 2010, the critical terms of the
swaps match the terms of the debt, resulting in no hedge
ineffectiveness. On an ongoing basis (no less than once each
quarter), the Company assesses whether its LIBOR-based interest
payments are probable of being paid during the life of the
hedging relationship. The Company also assesses the counterparty
credit risk, including credit ratings and potential
non-performance of the counterparties, when determining the fair
value of the swaps.
As of October 31, 2010, the fair value of the interest rate
swaps was a $0.4 million liability, of which
$0.3 million and $0.1 million were included in Other
accrued liabilities and Retirement plans and other,
respectively, on the accompanying consolidated balance sheet.
The effective portion of these cash flow hedges is recorded as
accumulated other comprehensive loss in the Companys
accompanying consolidated balance sheet and reclassified into
interest expense in the Companys accompanying consolidated
statements of income in the same period during which the hedged
transactions affect earnings. Any ineffective portion of the
hedges is recorded immediately to interest expense. No
ineffectiveness existed at October 31, 2010. The amount
included in accumulated other comprehensive loss is
$0.4 million ($0.3 million, net of taxes).
Investment in
Auction Rate Securities
At October 31, 2010, the Company held investments in
auction rate securities from five different issuers having an
aggregate original principal amount of $25.0 million. The
investments are not subject to material interest rate risk.
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 based on spreads to a base rate
(i.e., LIBOR). A hypothetical 1% increase in interest rates
during 2010 would have added approximately $0.3 million of
additional interest income in 2010.
Foreign
Currency
Substantially all of the operations of the Company are conducted
in the United States, and, as such, are not subject to material
foreign currency exchange rate risk.
37
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ABM Industries Incorporated:
We have audited the accompanying consolidated balance sheets of
ABM Industries Incorporated and subsidiaries as of
October 31, 2010 and 2009, 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, 2010. In connection
with our audits of the consolidated financial statements, we
have also audited the related financial statement
Schedule II. We have also audited ABM Industries
Incorporateds internal control over financial reporting as
of October 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). ABM Industries Incorporateds management
is responsible for these consolidated financial statements, the
related financial statement Schedule II, for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting (Item 9A(b)) . Our responsibility is to express
an opinion on these consolidated financial statements and an
opinion on the Companys internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
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, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended October 31, 2010, in conformity
with U.S. generally accepted accounting principles. 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. Also in our
opinion, ABM Industries Incorporated maintained, in all material
respects, effective internal control over financial reporting as
of October 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
New York, New York
December 23, 2010
38
ABM Industries
Incorporated and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
October 31,
|
|
2010
|
|
|
2009
|
|
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
Assets
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,446
|
|
|
$
|
34,153
|
|
Trade accounts receivable, net of allowances of $10,672 and
$10,772 at October 31, 2010 and 2009, respectively
|
|
|
450,513
|
|
|
|
445,241
|
|
Prepaid income taxes
|
|
|
1,498
|
|
|
|
13,473
|
|
Current assets of discontinued operations
|
|
|
4,260
|
|
|
|
10,787
|
|
Prepaid expenses
|
|
|
41,306
|
|
|
|
38,781
|
|
Notes receivable and other
|
|
|
20,402
|
|
|
|
21,374
|
|
Deferred income taxes, net
|
|
|
46,193
|
|
|
|
52,171
|
|
Insurance recoverables
|
|
|
5,138
|
|
|
|
5,017
|
|
|
Total current assets
|
|
|
608,756
|
|
|
|
620,997
|
|
|
|
|
|
|
|
|
|
|
Non-current assets of discontinued operations
|
|
|
1,392
|
|
|
|
4,567
|
|
Insurance deposits
|
|
|
36,164
|
|
|
|
42,500
|
|
Other investments and long-term receivables
|
|
|
4,445
|
|
|
|
6,240
|
|
Deferred income taxes, net
|
|
|
51,068
|
|
|
|
63,444
|
|
Insurance recoverables
|
|
|
70,960
|
|
|
|
67,100
|
|
Other assets
|
|
|
37,869
|
|
|
|
32,446
|
|
Investments in auction rate securities
|
|
|
20,171
|
|
|
|
19,531
|
|
Property, plant and equipment, net of accumulated depreciation
of $98,884 and $92,563 at October 31, 2010 and 2009,
respectively
|
|
|
58,088
|
|
|
|
56,892
|
|
Other intangible assets, net of accumulated amortization of
$54,889 and $43,464 at October 31, 2010 and 2009,
respectively
|
|
|
65,774
|
|
|
|
60,199
|
|
Goodwill
|
|
|
593,983
|
|
|
|
547,237
|
|
|
Total assets
|
|
$
|
1,548,670
|
|
|
$
|
1,521,153
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
78,928
|
|
|
$
|
84,701
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
89,063
|
|
|
|
93,095
|
|
Taxes other than income
|
|
|
17,663
|
|
|
|
17,539
|
|
Insurance claims
|
|
|
77,101
|
|
|
|
78,144
|
|
Other
|
|
|
70,048
|
|
|
|
66,279
|
|
Income taxes payable
|
|
|
977
|
|
|
|
1,871
|
|
Current liabilities of discontinued operations
|
|
|
71
|
|
|
|
1,065
|
|
|
Total current liabilities
|
|
|
333,851
|
|
|
|
342,694
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
29,455
|
|
|
|
17,763
|
|
Line of credit
|
|
|
140,500
|
|
|
|
172,500
|
|
Retirement plans and other
|
|
|
34,626
|
|
|
|
32,963
|
|
Insurance claims
|
|
|
271,213
|
|
|
|
268,183
|
|
|
Total liabilities
|
|
|
809,645
|
|
|
|
834,103
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Commitment and Contingencies
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 500,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 100,000,000 shares
authorized; 52,635,343 and 51,688,218 shares issued and
outstanding at October 31, 2010 and 2009, respectively
|
|
|
526
|
|
|
|
517
|
|
Additional paid-in capital
|
|
|
192,418
|
|
|
|
176,480
|
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(1,863
|
)
|
|
|
(2,423
|
)
|
Retained earnings
|
|
|
547,944
|
|
|
|
512,476
|
|
|
Total stockholders equity
|
|
|
739,025
|
|
|
|
687,050
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,548,670
|
|
|
$
|
1,521,153
|
|
|
|
See
accompanying notes to the consolidated financial statements.
39
ABM Industries
Incorporated and Subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
October 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,495,747
|
|
|
$
|
3,481,823
|
|
|
$
|
3,623,590
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
3,134,018
|
|
|
|
3,114,699
|
|
|
|
3,224,696
|
|
Selling, general and administrative
|
|
|
241,526
|
|
|
|
263,633
|
|
|
|
287,650
|
|
Amortization of intangible assets
|
|
|
11,364
|
|
|
|
11,384
|
|
|
|
11,735
|
|
|
Total expenses
|
|
|
3,386,908
|
|
|
|
3,389,716
|
|
|
|
3,524,081
|
|
|
Operating profit
|
|
|
108,839
|
|
|
|
92,107
|
|
|
|
99,509
|
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
OTTI recognized in earnings (other comprehensive income)
|
|
|
127
|
|
|
|
(2,129
|
)
|
|
|
|
|
Interest expense
|
|
|
4,639
|
|
|
|
5,881
|
|
|
|
15,193
|
|
|
Income from continuing operations before income taxes
|
|
|
104,073
|
|
|
|
84,660
|
|
|
|
84,316
|
|
Provision for income taxes
|
|
|
40,203
|
|
|
|
29,170
|
|
|
|
31,585
|
|
|
Income from continuing operations
|
|
|
63,870
|
|
|
|
55,490
|
|
|
|
52,731
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(3,776
|
)
|
Loss on sale of discontinued operations, net of taxes of $1,008
|
|
|
|
|
|
|
|
|
|
|
(3,521
|
)
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(7,297
|
)
|
|
Net income
|
|
$
|
64,121
|
|
|
$
|
54,293
|
|
|
$
|
45,434
|
|
|
|
Net income per common share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.23
|
|
|
$
|
1.08
|
|
|
$
|
1.04
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
Net Income
|
|
$
|
1.23
|
|
|
$
|
1.06
|
|
|
$
|
0.90
|
|
|
|
Net income per common share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.21
|
|
|
$
|
1.07
|
|
|
$
|
1.03
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.15
|
)
|
|
Net Income
|
|
$
|
1.21
|
|
|
$
|
1.05
|
|
|
$
|
0.88
|
|
|
|
Weighted-average common and common equivalent shares
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,117
|
|
|
|
51,373
|
|
|
|
50,519
|
|
Diluted
|
|
|
52,908
|
|
|
|
51,845
|
|
|
|
51,386
|
|
Dividends declared per common share
|
|
$
|
0.54
|
|
|
$
|
0.52
|
|
|
$
|
0.50
|
|
|
|
See accompanying notes to the
consolidated financial statements.
40
ABM Industries
Incorporated and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
(In thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
Balance October 31, 2007
|
|
|
57,048
|
|
|
$
|
571
|
|
|
|
(7,028
|
)
|
|
$
|
(122,338
|
)
|
|
$
|
261,182
|
|
|
$
|
880
|
|
|
$
|
465,463
|
|
|
$
|
605,758
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,434
|
|
|
|
45,434
|
|
Unrealized loss on auction rate securities, net of taxes of
$2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,621
|
)
|
|
|
|
|
|
|
(3,621
|
)
|
Foreign currency translation, net of taxes of $590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(909
|
)
|
|
|
|
|
|
|
(909
|
)
|
Actuarial gain Adjustments to pension and other
post-retirement benefit plans, net of taxes of $148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,132
|
|
Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,271
|
)
|
|
|
(25,271
|
)
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
Stock issued under employees stock purchase and option
plans
|
|
|
944
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
14,818
|
|
|
|
|
|
|
|
(490
|
)
|
|
|
14,338
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,195
|
|
|
|
|
|
|
|
|
|
|
|
7,195
|
|
|
Balance October 31, 2008
|
|
|
57,992
|
|
|
$
|
581
|
|
|
|
(7,028
|
)
|
|
$
|
(122,338
|
)
|
|
$
|
284,094
|
|
|
$
|
(3,422
|
)
|
|
$
|
485,136
|
|
|
$
|
644,051
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,293
|
|
|
|
54,293
|
|
Unrealized gain on auction rate securities, net of taxes of $203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
297
|
|
Reclass adjustment for credit losses recognized in earnings, net
of taxes of $636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
930
|
|
|
|
|
|
|
|
930
|
|
Foreign currency translation, net of taxes of $241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
577
|
|
|
|
|
|
|
|
577
|
|
Actuarial loss Adjustments to pension and other
post-retirement benefit plans, net of taxes of $139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203
|
)
|
|
|
|
|
|
|
(203
|
)
|
Unrealized loss on interest rate swaps, net of taxes of $412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(602
|
)
|
|
|
|
|
|
|
(602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,292
|
|
Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,727
|
)
|
|
|
(26,727
|
)
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,314
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,314
|
)
|
Stock issued under employees stock purchase and option
plans
|
|
|
724
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
8,557
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
8,337
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,411
|
|
|
|
|
|
|
|
|
|
|
|
7,411
|
|
Treasury stock retirement
|
|
|
(7,028
|
)
|
|
|
(70
|
)
|
|
|
7,028
|
|
|
|
122,338
|
|
|
|
(122,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2009
|
|
|
51,688
|
|
|
$
|
517
|
|
|
|
|
|
|
$
|
|
|
|
$
|
176,480
|
|
|
$
|
(2,423
|
)
|
|
$
|
512,476
|
|
|
$
|
687,050
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,121
|
|
|
|
64,121
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
68
|
|
Unrealized gain on auction rate securities, net of taxes of $179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
|
|
461
|
|
Reclass adjustment for credit losses recognized in earnings, net
of taxes of $53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
Unrealized loss on interest rate swaps, net of taxes of $230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
338
|
|
Actuarial loss Adjustments to pension and other
post-retirement benefit plans, net of taxes of $108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,681
|
|
Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,152
|
)
|
|
|
(28,152
|
)
|
Excess tax benefit from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
383
|
|
Stock issued under employees stock purchase and option
plans
|
|
|
947
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
11,484
|
|
|
|
|
|
|
|
(501
|
)
|
|
|
10,992
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,071
|
|
|
|
|
|
|
|
|
|
|
|
4,071
|
|
|
Balance October 31, 2010
|
|
|
52,635
|
|
|
$
|
526
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
192,418
|
|
|
$
|
(1,863
|
)
|
|
$
|
547,944
|
|
|
$
|
739,025
|
|
|
|
See accompanying
notes to the consolidated financial statements.
41
ABM Industries
Incorporated and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
October 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,121
|
|
|
$
|
54,293
|
|
|
$
|
45,434
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(7,297
|
)
|
|
Income from continuing operations
|
|
|
63,870
|
|
|
|
55,490
|
|
|
|
52,731
|
|
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets
|
|
|
36,315
|
|
|
|
33,325
|
|
|
|
28,075
|
|
Deferred income taxes
|
|
|
17,654
|
|
|
|
16,191
|
|
|
|
28,156
|
|
Share-based compensation expense
|
|
|
4,071
|
|
|
|
7,411
|
|
|
|
7,195
|
|
Provision for bad debt
|
|
|
2,636
|
|
|
|
3,960
|
|
|
|
4,954
|
|
Discount accretion on insurance claims
|
|
|
912
|
|
|
|
1,248
|
|
|
|
1,766
|
|
Auction rate security credit loss impairment
|
|
|
127
|
|
|
|
1,566
|
|
|
|
|
|
Gain on sale of assets
|
|
|
(1,059
|
)
|
|
|
(941
|
)
|
|
|
(23
|
)
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
1,976
|
|
|
|
19,931
|
|
|
|
(34,333
|
)
|
Prepaid expenses and other current assets
|
|
|
(297
|
)
|
|
|
(1,431
|
)
|
|
|
6,942
|
|
Insurance recoverables
|
|
|
(3,981
|
)
|
|
|
(500
|
)
|
|
|
3,401
|
|
Other assets and long-term receivables
|
|
|
3,856
|
|
|
|
(8,764
|
)
|
|
|
1,424
|
|
Income taxes payable
|
|
|
22,629
|
|
|
|
12,623
|
|
|
|
(1,053
|
)
|
Retirement plans and other non-current liabilities
|
|
|
(317
|
)
|
|
|
(5,144
|
)
|
|
|
(6,659
|
)
|
Insurance claims
|
|
|
(247
|
)
|
|
|
(1,497
|
)
|
|
|
(17,900
|
)
|
Trade accounts payable and other accrued liabilities
|
|
|
(7,399
|
)
|
|
|
(12,213
|
)
|
|
|
(12,401
|
)
|
|
Total adjustments
|
|
|
76,876
|
|
|
|
65,765
|
|
|
|
9,544
|
|
|
Net cash provided by continuing operating activities
|
|
|
140,746
|
|
|
|
121,255
|
|
|
|
62,275
|
|
Net cash provided by discontinued operating activities
|
|
|
9,118
|
|
|
|
19,616
|
|
|
|
6,032
|
|
|
Net cash provided by operating activities
|
|
|
149,864
|
|
|
|
140,871
|
|
|
|
68,307
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(23,942
|
)
|
|
|
(18,582
|
)
|
|
|
(34,063
|
)
|
Proceeds from sale of assets and other
|
|
|
1,512
|
|
|
|
2,165
|
|
|
|
1,784
|
|
Purchase of businesses, net of cash acquired
|
|
|
(65,430
|
)
|
|
|
(21,050
|
)
|
|
|
(422,883
|
)
|
|
Net cash used in continuing investing activities
|
|
|
(87,860
|
)
|
|
|
(37,467
|
)
|
|
|
(455,162
|
)
|
Net cash provided by discontinued investing activities
|
|
|
|
|
|
|
|
|
|
|
33,640
|
|
|
Net cash used in investing activities
|
|
|
(87,860
|
)
|
|
|
(37,467
|
)
|
|
|
(421,522
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercises of stock options (including income tax
benefit)
|
|
|
11,376
|
|
|
|
6,331
|
|
|
|
14,620
|
|
Dividends paid
|
|
|
(28,152
|
)
|
|
|
(26,727
|
)
|
|
|
(25,271
|
)
|
Deferred financing costs paid
|
|
|
|
|
|
|
|
|
|
|
(1,616
|
)
|
Borrowings from line of credit
|
|
|
448,000
|
|
|
|
638,000
|
|
|
|
810,500
|
|
Repayment of borrowings from line of credit
|
|
|
(480,000
|
)
|
|
|
(695,500
|
)
|
|
|
(580,500
|
)
|
Net (decrease) increase in book cash overdraft
|
|
|
(7,935
|
)
|
|
|
(18,096
|
)
|
|
|
14,506
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(56,711
|
)
|
|
|
(95,992
|
)
|
|
|
232,239
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,293
|
|
|
|
7,412
|
|
|
|
(120,976
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
34,153
|
|
|
|
26,741
|
|
|
|
147,717
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
39,446
|
|
|
$
|
34,153
|
|
|
$
|
26,741
|
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (refunded) paid for income taxes, net of refunds received
|
|
$
|
(108
|
)
|
|
$
|
1,426
|
|
|
$
|
3,529
|
|
Excess tax benefit from exercise of options
|
|
|
383
|
|
|
|
57
|
|
|
|
28
|
|
Cash received from exercise of options
|
|
|
10,993
|
|
|
|
7,145
|
|
|
|
13,721
|
|
Cash interest paid
|
|
|
3,398
|
|
|
|
4,740
|
|
|
|
12,626
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for business acquired
|
|
$
|
|
|
|
$
|
1,198
|
|
|
$
|
621
|
|
|
See accompanying
notes to the consolidated financial statements.
42
ABM Industries
Incorporated and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
THE COMPANY AND
NATURE OF OPERATIONS
|
ABM Industries Incorporated (ABM), through its
subsidiaries (collectively, the Company), is a
leading facility services contractor providing janitorial,
parking, security and engineering services for commercial,
industrial, institutional and retail facilities primarily
throughout the United States. The Company was reincorporated in
Delaware on March 19, 1985, as the successor to a business
founded in California in 1909.
On December 1, 2010, the Company acquired The Linc Group,
LLC (Linc) for an aggregate purchase price of
approximately $301.0 million, subject to certain
adjustments. See Note 16, Subsequent Events for
additional information.
|
|
2.
|
BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of
Presentation
The accompanying consolidated financial statements include the
accounts of ABM Industries Incorporated and its consolidated
subsidiaries and are prepared in accordance with accounting
principles generally accepted in the United States of America
(GAAP). All intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of consolidated financial statements in
conformity with GAAP requires the Company to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, the
Company evaluates its estimates, including those related to
self-insurance reserves, allowance for doubtful accounts, sales
allowances, deferred income tax assets and valuation allowances,
estimate of useful lives of intangible assets, impairment of
goodwill and other intangibles, fair value of auction rate
securities, cash flow forecasts, share-based compensation
expense, and contingencies and litigation liabilities. The
Company bases its estimates on historical experience, known or
expected trends, independent valuations and various other
assumptions that are believed to be reasonable under the
circumstances based on information available as of the date of
the issuance of these financial statements. The results of such
assumptions form the basis for making estimates about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The current economic environment
and its potential effect on the Company and its clients have
combined to increase the uncertainty inherent in such estimates
and assumptions. Future results could be significantly affected
if actual results were to be different from these estimates and
assumptions.
Significant
Accounting Policies
Cash and Cash Equivalents. The Company considers all
highly liquid instruments with original maturities of three
months or less at the date of purchase to be cash equivalents.
The Company presents the change in book cash overdrafts (i.e.,
negative book cash balances that have not been presented to the
bank for payment) as cash flows from financing activities.
Investments in Auction Rate Securities. The Company
considers its investments in auction rate securities as
available for sale. Accordingly, auction rate
securities are presented at fair value with changes in fair
value recorded within other comprehensive income
(OCI), unless a decline in fair value is determined
to be
other-than-temporary.
The credit loss component of an
other-than-temporary
decline in fair value is recorded in earnings in the period
identified. See Note 5, Auction Rate
Securities, for additional information.
Revenue Recognition. The Company earns revenues
primarily under service contracts that are fixed price,
cost-plus, or time and materials based. Revenues are recognized
when earned, normally when services are performed. In all forms
of service provided by the Company, revenue recognition follows
the guidelines under Staff Accounting Bulletin (SAB)
No. 104, unless another form of guidance takes precedence
over SAB No. 104. Revenues are reported net of
applicable sales and use tax imposed on the related transaction.
The Janitorial segment primarily earns revenues from the
following types of arrangements: fixed price, cost-plus, and tag
(extra service) work. Fixed price arrangements are contracts in
which the client agrees to pay a fixed fee every month over the
specified contract term. A variation of a fixed price
arrangement is a square-foot arrangement. Square-foot
arrangements are ones in which monthly billings are fixed,
however, the client is given a credit based on vacant square
footage that is not serviced. Cost-plus arrangements are ones in
which the client agrees to reimburse the Company for the agreed
upon amount of wages and benefits, payroll taxes, insurance
charges and other expenses plus a profit percentage. Tag
revenues are additional services requested by the client outside
of the standard contract terms. This work is usually performed
on short notice
43
due to unforeseen events. The Janitorial segment recognizes
revenues on each type of arrangement when services are performed.
The Parking segment earns revenues from parking and
transportation services. There are three types of arrangements
for parking services: managed lot, leased lot and allowance
arrangements. Under managed lot arrangements, the Company
manages the parking lot for the owner in exchange for a
management fee. The revenues and expenses are passed through by
the Company to the owner under the terms and conditions of the
management contract. The management fee revenues are recognized
when services are performed. The Company reports revenues and
expenses, in equal amounts, for costs directly reimbursed from
its managed parking lot clients. Such amounts totaled
$231.5 million, $231.0 million and $253.7 million
for the years ended October 31, 2010, 2009 and 2008,
respectively. Under leased lot arrangements, the Company leases
the parking lot from the owner and is responsible for all
expenses incurred, retains all revenues from monthly and
transient parkers, and pays rent to the owner per the terms and
conditions of the lease. Revenues are recognized when services
are performed. Under allowance arrangements, the Company is paid
a fixed or hourly fee to provide parking
and/or
transportation services. The Company is then responsible for
operating expenses. Revenues are recognized when services are
performed.
The Security segment primarily performs scheduled post
assignments under one-year service arrangements. Security
services for special events are generally performed under
temporary service agreements. Scheduled post assignments and
temporary service agreements are billed based on actual hours of
service at contractually specified rates. Revenues for both
types of arrangements are recognized when services are performed.
The Engineering segment provides services primarily under
cost-plus arrangements in which the client agrees to reimburse
the Company for the full amount of wages, payroll taxes,
insurance charges and other expenses plus a profit percentage.
Revenues are recognized for these contracts when services are
performed.
Self-Insurance Reserves. The Company is subject to
certain insurable risks, such as workers compensation,
general liability, automobile and property damage. The Company
maintains commercial insurance policies that provide
$150.0 million (or $75.0 million with respect to
claims acquired from OneSource Services, Inc.
(OneSource) in the year ended October 31,
2008) of coverage for certain risk exposures above the
Companys deductibles (i.e., self-insurance retention
limits). The Companys deductibles, currently and
historically, have generally ranged from $0.5 million to
$1.0 million per occurrence (in some cases somewhat higher
in California). The Company is also responsible for claims in
excess of its insurance coverage. A material change in the
Companys insurance costs due to a change in the number of
claims, costs or premiums, or changes in laws or other factors
could have a material effect on operating results. Should the
Company be unable to renew its umbrella and other commercial
insurance policies at competitive rates, it would have an
adverse impact on the Companys business, as would the
incurrence of catastrophic uninsured claims or the inability or
refusal of the insurance carriers to pay otherwise insured
claims. Further, to the extent that the Company self-insures,
deterioration in claims management could increase claim costs.
Additionally, although the Company engages third-party experts
to assist in estimating appropriate self-insurance accounting
reserves, the determination of those reserves is dependent upon
significant actuarial judgments that have a material impact on
the Companys reserves. Changes in the Companys
insurance reserves, as a result of periodic evaluations of the
related liabilities, will likely cause significant volatility in
the Companys operating results that might not be
indicative of the operations of the Companys ongoing
business.
Liabilities for claims under the Companys self-insurance
program are recorded on an undiscounted, claims-incurred basis.
Associated amounts that are expected to be recovered by
insurance are presented as insurance recoverables.
Assets and liabilities related to the Companys insurance
programs are classified based upon the timing of expected
payment or recovery. The Company allocates current-year
insurance expense to its operating segments based upon their
underlying exposures.
In connection with the OneSource acquisition (see Note 3,
Acquisitions), acquired insurance claims liabilities
were recorded at their fair values at the acquisition date,
which was based on the present value of the expected future cash
flows. These discounted liabilities are being accreted through
charges to interest expense as the carrying amounts are brought
to an undiscounted amount. The method of accretion approximates
the effective interest yield method using the rate a market
participant would use in determining the current fair value of
the insurance claim liabilities. Included in interest expense in
the years ended October 31, 2010 and 2009 were
$0.9 million and $1.2 million of interest accretion
related to insurance claims liabilities, respectively.
44
Trade Accounts
Receivable Allowances
Allowance for
Doubtful Accounts
Trade accounts receivable arise from services provided to the
Companys clients and are generally due and payable on
terms varying from receipt of the invoice to net thirty days.
The Company records an allowance for doubtful accounts to
provide for losses on accounts receivable due to a clients
inability to pay. The allowance is typically estimated based on
an analysis of the historical rate of credit losses or
write-offs (due to a client bankruptcy or failure of a former
client to pay), specific client concerns and known or expected
trends. Such analysis is inherently subjective. The
Companys earnings will be impacted in the future to the
extent that actual credit loss experience differs from amounts
estimated. Changes in the financial condition of the
Companys clients or adverse developments in negotiations
or legal proceedings to obtain payment could result in the
actual loss exceeding the estimated allowance. The Company does
not believe that it has any material exposure due to either
industry or regional concentrations of credit risk.
Sales
Allowance
Sales allowance is an estimate for losses on client receivables
resulting from client credits. Credits result from, among other
things, client vacancy discounts, job cancellations and property
damage. The sales allowance estimate is based on an analysis of
the historical rate of sales adjustments (credit memos, net of
re-bills) and considers known current or expected trends. Such
analysis is inherently subjective. The Companys earnings
will be impacted in the future to the extent that actual credit
experience differs from amounts estimated.
Property, Plant and Equipment. Property, plant and
equipment is recorded at historical cost. Depreciation and
amortization are recognized on a straight-line basis over
estimated useful lives, ranging from: 3 to 5 years for
transportation equipment and capitalized internal-use software
costs; 2 to 20 years for machinery and equipment; and 20 to
40 years for buildings. Leasehold improvements are
amortized over the shorter of their estimated useful lives or
the remaining lease term (including renewals that are deemed to
be reasonably assured at the date that the leasehold
improvements are purchased).
Long-Lived Assets Other Than Goodwill. The Company
reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may
not be recoverable. When such events or changes in circumstances
occur, a recoverability test is performed comparing projected
undiscounted cash flows from the use and eventual disposition of
an asset or asset group to its carrying amount. If the projected
undiscounted cash flows are less than the carrying amount, an
impairment is recorded for the excess of the carrying amount
over the estimated fair value, which is generally determined
using discounted future cash flows.
The Companys intangible assets consist of acquired
customer contracts and relationships, trademarks and trade
names, and contract rights. Acquired customer relationship
intangible assets are being amortized using the
sum-of-the-years-digits
method over their useful lives consistent with the estimated
useful life considerations used in the determination of their
fair values. The accelerated method of amortization reflects the
pattern in which the economic benefits of the customer
relationship intangible assets are expected to be realized.
Trademarks and trade names are being amortized over their useful
lives using the straight-line method. Contract rights are being
amortized over the contract periods using the straight-line
method.
Goodwill. Goodwill represents the excess of costs
over the fair value of net assets of acquired businesses. The
Company assesses impairment of goodwill at least annually as of
August 1 at the reporting unit level (which for the Company is
represented by each operating segment). The impairment test is
performed in two steps: (i) the Company determines whether
impairment exists by comparing the estimated fair value of each
reporting unit with its carrying amount; and (ii) if an
indication of impairment exists, the Company measures the amount
of impairment loss by comparing the implied fair value of
goodwill with its carrying amount.
Other Accrued Liabilities. Other accrued liabilities
as of October 31, 2010 and 2009 primarily consists of
employee benefits, dividends payable, loss contingencies, rent
payable, and unclaimed property.
Share-Based Compensation. Share-based compensation
expense is measured at the grant date, based on the fair value
of the award, and is recognized as an expense over the requisite
employee service period (generally the vesting period) for
awards expected to vest (considering estimated forfeitures). The
Company estimates the fair value of stock options using the
Black-Scholes option-pricing model. The fair value of restricted
stock and performance awards is determined based on the number
of shares granted and the grant date fair value of the award.
The estimation of stock awards that will ultimately vest
requires judgment, and to the extent actual results or updated
estimates differ from the Companys current estimates, such
amounts will be recorded as a cumulative adjustment in the
period estimates are revised. The Company considers many factors
when estimating expected forfeitures,
45
including types of awards, employee class, and historical
experience. Stock option exercises and restricted stock and
performance award issuances are expected to be fulfilled with
new shares of common stock. Share-based compensation expense is
included in selling, general and administrative expenses and is
amortized on a straight-line basis over the vesting term.
Income Taxes. The Companys deferred tax assets
and liabilities are determined based on temporary differences
between financial reporting and tax bases of assets and
liabilities, and applying enacted tax rates expected to be in
effect for the year in which the differences are expected to
reverse. If management determines it is more-likely-than-not
that a portion of the Companys deferred tax assets will
not be realized, a valuation allowance is recorded. The
provision for income taxes is based on domestic (including
federal and state) and international statutory income tax rates
in the tax jurisdictions where the Company operates, permanent
differences between financial reporting and tax reporting, and
available credits and incentives. Interest and penalties related
to uncertain tax positions are recognized in income tax expense.
The U.S federal government is the Companys most
significant income tax jurisdiction.
Significant judgment is required in determining income tax
provisions and tax positions. The Company may be challenged upon
review by the applicable taxing authorities and positions taken
may not be sustained. All, or a portion of, the benefit of
income tax positions are recognized only when the Company has
made a determination that it is more-likely-than-not that the
tax position will be sustained upon examination, based upon the
technical merits of the position and other factors. For tax
positions that are determined as more-likely-than-not to be
sustained upon examination, the tax benefit recognized is the
largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. The development of
reserves for income tax positions requires consideration of
timing and judgments about tax issues and potential outcomes,
and is a subjective critical estimate. In certain circumstances,
the ultimate outcome of exposures and risks involves significant
uncertainties. If actual outcomes differ materially from these
estimates, they could have a material impact on the
Companys results of operations and financial condition.
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 (RSUs) and performance
shares. The calculations of basic and diluted net income per
common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Income from continuing operations
|
|
$
|
63,870
|
|
|
$
|
55,490
|
|
|
$
|
52,731
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
251
|
|
|
|
(1,197
|
)
|
|
|
(7,297
|
)
|
|
|
Net income
|
|
$
|
64,121
|
|
|
$
|
54,293
|
|
|
$
|
45,434
|
|
|
|
Weighted-average common shares outstanding Basic
|
|
|
52,117
|
|
|
|
51,373
|
|
|
|
50,519
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
446
|
|
|
|
241
|
|
|
|
652
|
|
Restricted stock units
|
|
|
261
|
|
|
|
180
|
|
|
|
145
|
|
Performance shares
|
|
|
84
|
|
|
|
51
|
|
|
|
70
|
|
|
|
Weighted-average common shares outstanding Diluted
|
|
|
52,908
|
|
|
|
51,845
|
|
|
|
51,386
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.23
|
|
|
$
|
1.06
|
|
|
$
|
0.90
|
|
Diluted
|
|
$
|
1.21
|
|
|
$
|
1.05
|
|
|
$
|
0.88
|
|
|
|
The diluted net income per common share excludes certain stock
options and RSUs since the effect of including these stock
options and restricted stock units would have been anti-dilutive
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Stock options
|
|
|
744
|
|
|
|
2,017
|
|
|
|
781
|
|
Restricted stock units
|
|
|
29
|
|
|
|
206
|
|
|
|
98
|
|
|
|
Contingencies and Litigation. Loss contingencies are
recorded as liabilities when they are 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. If the Company believes that a loss in litigation
is not probable, then no liability will be recorded unless the
parties agree upon a settlement, which may occur because the
Company wishes to avoid the costs of litigation. Expected costs
of resolving contingencies, which include the use of third-party
service providers, are accrued as the services are rendered.
Accumulated Other Comprehensive Income
(Loss). Comprehensive income consists of (i) net
income and (ii) other related gains and losses affecting
stockholders equity that, under GAAP, are excluded from
net income. For the Company, such OCI items consist primarily of
unrealized gains and losses on auction rate securities,
unrealized losses on interest rate swaps, actuarial adjustments
to pension and other post-retirement benefit plans, and
unrealized foreign currency translation gains and losses, net of
tax effects where appropriate.
46
Adoption of
Accounting Standards
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
Codificationtm
(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 then being pursued. In
addition, during 2010 the Company incurred an additional
$1.3 million of acquisition costs related to the
acquisitions of Five Star Parking, Network Parking Company Ltd.
and System Parking Inc. (L&R) and Diversco,
Inc. (Diversco) and other acquisitions currently
being pursued.
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. This authoritative standard
must be applied prospectively to all intangible assets
recognized as of the effective date. This authoritative standard
had no impact on the Companys consolidated financial
statements, but could impact the way in which the useful lives
of intangible assets acquired in business combinations will be
determined, 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). This authoritative
standard expands the annual disclosures by requiring additional
disclosures about how investment allocation decisions are made
by management, major categories of plan assets and significant
concentrations of risk. Additionally, an employer is now
required to disclose information about the valuation of plan
assets similar to the disclosure required under ASC Topic 820
Fair Value Measurements and Disclosures (ASC
820). This authoritative standard did not have an impact
on the Companys consolidated financial statements as it
only amended required annual disclosures. See Note 10,
Employee Benefit Plans, for the required 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
Companys non-financial assets and non-financial
liabilities principally consist of intangible assets acquired
through business combinations and long-lived assets. During the
year ended October 31, 2010, the Company did not re-measure
any non-financial assets or non-financial liabilities to fair
value, therefore, this authoritative standard did not have any
impact on the Companys consolidated financial statements.
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
non-recurring 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 during 2010, and the required additional
disclosures had no impact on the Companys financial
position or results of operations. See Note 4, Fair
Value Measurements and Note 5, Auction Rate
Securities for the required disclosures.
The operating results generated by businesses acquired have been
included in the accompanying consolidated financial statements
from their respective dates of acquisition. The excess of the
purchase price (including subsequent contingent purchase price
considerations for acquisitions made prior to the adoption of
the FASB updated authoritative standard for accounting for
business combinations on November 1, 2009) over the
fair value of the net tangible and intangible assets acquired is
included in goodwill. Some of the Companys purchase
agreements provide for initial payments and contingent payments
based on the annual pre-tax income or other financial parameters
for subsequent periods, ranging generally from two to five years.
47
The Company made the following acquisitions during the year
ended October 31, 2010:
Diversco
On June 30, 2010, the Company acquired all of the
outstanding shares of Diversco from DHI Holdings, Inc. for
$30.6 million in cash and incurred direct acquisition costs
of $0.2 million, which were expensed as incurred. The
purchase price was subsequently adjusted to $30.4 million
in connection with a working capital adjustment. Diversco is a
national provider of outsourced facility services. The
acquisition expands the geographic reach of the Companys
janitorial and security businesses, particularly in the
Southeast, Midwest and Mid-Atlantic regions of the United
States. The results of operations for Diversco are included in
the Companys Janitorial and Security segments as of the
acquisition date. The amounts of Diverscos revenues and
operating profit included in the Companys consolidated
statements of income for 2010 were $28.1 million and
$1.2 million, respectively. Pro forma financial information
for this acquisition is not provided as this acquisition is not
material to the Companys financial statements.
The allocation of the purchase price to the underlying net
assets acquired and liabilities assumed was based on their
estimated fair values as of the acquisition date, June 30,
2010, with any excess of the purchase price allocated to
goodwill. During the three months ended October 31, 2010,
the Company further adjusted goodwill related to its acquisition
of Diversco by $0.4 million for a self-insurance reserve
adjustment based on the final actuarial analysis of assumed
insurance liabilities obtained.
The final purchase price and related allocations are summarized
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
|
|
Total cash consideration
|
|
$
|
30,390
|
|
|
|
Allocated to:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,758
|
|
Trade accounts receivable
|
|
|
9,884
|
|
Other assets
|
|
|
1,244
|
|
Property, plant and equipment
|
|
|
3,063
|
|
Identifiable intangible assets
|
|
|
10,800
|
|
Trade accounts payable
|
|
|
(1,327
|
)
|
Accrued liabilities
|
|
|
(7,366
|
)
|
Insurance claims
|
|
|
(1,322
|
)
|
Other liabilities
|
|
|
(450
|
)
|
Goodwill
|
|
|
13,106
|
|
|
|
Net assets acquired
|
|
$
|
30,390
|
|
|
|
The acquired customer contracts and relationships, included in
identifiable intangible assets, will be amortized using the
sum-of-the-years-digits
method over their useful lives of 11 years, which is
consistent with the estimated useful life considerations used in
the determination of their fair values. Intangible assets of
$10.8 million were assigned to the Janitorial and Security
segments in the amounts of $9.2 million and
$1.6 million, respectively. Goodwill of $13.1 million
was assigned to the Janitorial and Security segments in the
amounts of $11.1 million and $2.0 million,
respectively, and is deductible for tax purposes. The amounts of
intangible assets and goodwill have been assigned to the
Janitorial and Security segments based on the respective profit
margins of the acquired customer contracts. The transaction was
taxable for income tax purposes and all assets and liabilities
have been recorded at fair value for both book and income tax
purposes. Therefore, no deferred taxes have been recorded.
L&R
On October 1, 2010, the Company acquired select assets of
L&R from the L&R Group of Companies for an aggregate
purchase price of $34.7 million, including
$0.2 million of assets distributed as consideration. The
Company incurred $0.4 million of direct acquisition costs,
which were expensed as incurred. The acquisition extends and
expands the Companys parking business in major cities. The
acquisition also expands the Companys presence at
airports. The results of operations of L&R are included in
the Companys Parking segment as of the acquisition date.
The amounts of L&R revenues and operating profit included
in the Companys consolidated statements of income for 2010
were $14.9 million and $0.4 million, respectively. Pro
forma financial information for this acquisition is not provided
as this acquisition is not material to the Companys
financial statements.
The allocation of the purchase price to the underlying net
assets acquired and liabilities assumed was based on their
estimated fair values as of the acquisition date, with any
excess of the purchase price allocated to goodwill.
48
The final purchase price and related allocations are summarized
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
Cash
|
|
$
|
34,500
|
|
Fair value of assets distributed
|
|
|
164
|
|
|
|
Total consideration
|
|
$
|
34,664
|
|
|
|
Allocated to:
|
|
|
|
|
Identifiable intangible assets (including favorable leases)
|
|
$
|
6,200
|
|
Property, plant and equipment
|
|
|
762
|
|
Other assets
|
|
|
142
|
|
Unfavorable leases
|
|
|
(2,600
|
)
|
Goodwill
|
|
|
30,160
|
|
|
|
Net assets acquired
|
|
$
|
34,664
|
|
|
|
The acquired intangible assets and unfavorable leases will be
amortized using the
sum-of-the-years-digits
method, or where appropriate the straight-line method, over
their useful lives: 11 years for managed customer
contracts, 4 years for favorable leases, 6 years for
unfavorable leases and 10 years for the non-compete
agreement, which is consistent with the estimated useful life
considerations used in the determination of their fair values.
The goodwill of $30.2 million is deductible for tax
purposes.
Contingent
Payments
Total additional consideration paid during the year ended
October 31, 2010 related to prior years acquisitions
totaled $3.3 million. The additional consideration
represents contingent amounts based on financial performance
subsequent to the respective acquisition dates and has been
recorded as goodwill.
The Company made the following acquisition during the year ended
October 31, 2009:
Control Building
Services, Inc., Control Engineering Services, Inc. and TTF, Inc.
(Control)
Effective May 1, 2009, the Company acquired certain assets
(primarily customer contracts and relationships) of Control for
$15.1 million in cash, which includes direct acquisition
costs of $0.1 million, plus additional consideration of up
to $1.6 million, payable in three equal installments of
$0.5 million, contingent upon the achievement of certain
revenue targets during the three year period commencing on
May 1, 2009. The acquisition closed on May 8, 2009 and
was accounted for under the purchase method of accounting. The
acquisition expands the Companys janitorial and
engineering service offerings to clients in the Northeast region.
The final purchase price and related allocations are summarized
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
Initial payment
|
|
$
|
15,000
|
|
Acquisition costs
|
|
|
81
|
|
|
|
Total cash consideration
|
|
$
|
15,081
|
|
|
|
Allocated to:
|
|
|
|
|
Identifiable intangible assets
|
|
$
|
9,080
|
|
Property, plant and equipment
|
|
|
407
|
|
Goodwill
|
|
|
5,594
|
|
|
|
Net assets acquired
|
|
$
|
15,081
|
|
|
|
The acquired customer contracts and relationships, classified as
intangible assets, are amortized using the
sum-of-the-years-digits
method over their useful lives of 12 years, which is
consistent with the estimated useful life considerations used in
the determination of their fair values. Goodwill of
$5.6 million was assigned to the Janitorial and Engineering
segments in the amounts of $4.4 million and
$1.2 million, respectively. Intangible assets were assigned
to the Janitorial and Engineering segments in the amounts of
$7.2 million and $1.9 million, respectively. Pro forma
financial information for this acquisition is not provided as
this acquisition is not material to the Companys financial
statements.
The Company made the following acquisitions during the year
ended October 31, 2008:
OneSource
Services, Inc. (OneSource)
On November 14, 2007, the Company acquired OneSource for an
aggregate purchase price of $390.5 million, including
payment of OneSources $21.5 million line of credit
and direct acquisition costs of $4.0 million. OneSource
provides facilities services, including janitorial, landscaping,
general repair and maintenance, and other specialized services,
for commercial, industrial, institutional and retail client
facilities, primarily in the United States. OneSources
operations are included in the Companys Janitorial segment
from the date of acquisition. The OneSource acquisition was
accounted for using the purchase method of accounting. During
the year ended October 31, 2009, the Company further
adjusted goodwill related to its acquisition of OneSource by
$1.2 million for professional fees, legal reserves for
litigation that commenced prior to the acquisition, additional
workers compensation insurance liabilities and certain
deferred income taxes.
49
The final purchase price and related allocations are summarized
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
Paid to OneSource shareholders
|
|
$
|
365,000
|
|
Payment of OneSources pre-existing line of credit
|
|
|
21,474
|
|
Acquisition costs
|
|
|
4,017
|
|
|
|
Total cash consideration
|
|
$
|
390,491
|
|
|
|
Allocated to:
|
|
|
|
|
Trade accounts receivable
|
|
$
|
94,552
|
|
Other current assets
|
|
|
12,223
|
|
Insurance recoverables
|
|
|
19,118
|
|
Insurance deposits
|
|
|
42,502
|
|
Property, plant and equipment
|
|
|
9,510
|
|
Identifiable intangible assets
|
|
|
48,700
|
|
Net deferred income tax assets
|
|
|
78,095
|
|
Other non-current assets
|
|
|
10,389
|
|
Current liabilities
|
|
|
(70,289
|
)
|
Insurance claims
|
|
|
(101,666
|
)
|
Other non-current liabilities
|
|
|
(21,026
|
)
|
Minority interest
|
|
|
(5,384
|
)
|
Goodwill
|
|
|
273,767
|
|
|
|
Net assets acquired
|
|
$
|
390,491
|
|
|
|
The following unaudited pro forma financial information shows
the combined results of continuing operations of the Company,
including OneSource, as if the acquisition had occurred as of
the beginning of the period presented. The unaudited pro forma
financial information is not intended to represent or be
indicative of the Companys consolidated financial results
of continuing operations that would have been reported had the
business combination been completed as of the beginning of the
period presented and should not be taken as indicative of the
Companys future consolidated results of continuing
operations.
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
October 31,
|
|
(In thousands, except per share data)
|
|
2008
|
|
|
|
|
Revenues
|
|
$
|
3,653,452
|
|
Income from continuing operations
|
|
$
|
52,343
|
|
Income from continuing operations per common share
|
|
|
|
|
Basic
|
|
$
|
1.04
|
|
Diluted
|
|
$
|
1.02
|
|
Southern
Management Company (Southern Management)
OneSource owned a controlling 50% of Southern Management, a
facility services company based in Chattanooga, Tennessee. On
January 4, 2008, the Company acquired the remaining equity
of Southern Management for $24.4 million, including direct
acquisition costs of $0.4 million. Of the
$24.4 million purchase price, $18.7 million was
allocated to goodwill and the remaining $5.7 million
eliminated the minority interest. An additional
$2.9 million was paid in March 2008 to the other
shareholders of Southern Management with respect to
undistributed 2007 earnings. This amount was allocated to
goodwill. Southern Managements operations are included in
the Janitorial segment.
|
|
4.
|
FAIR VALUE
MEASURMENTS
|
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 Companys 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 present the Companys hierarchy for
financial assets and liabilities measured at fair value on a
recurring basis as of October 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Fair Value at
|
|
|
Using Inputs Considered as
|
|
(In thousands)
|
|
October 31, 2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held in funded deferred compensation plan
|
|
$
|
5,717
|
|
|
$
|
5,717
|
|
|
$
|
|
|
|
$
|
|
|
Investments in auction rate securities
|
|
|
20,171
|
|
|
|
|
|
|
|
|
|
|
|
20,171
|
|
|
|
Total assets
|
|
$
|
25,888
|
|
|
$
|
5,717
|
|
|
$
|
|
|
|
$
|
20,171
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
445
|
|
|
$
|
|
|
|
|
Total liabilities
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
445
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
$
|
|
|
Investments 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
|
|
|
$
|
|
|
|
|
50
The fair value of the assets held in the funded deferred
compensation plan is based on quoted market prices. The assets
are included in Other assets on the accompanying consolidated
balance sheet.
The fair value of the investments in auction rate securities are
based on discounted cash flow valuation models, primarily
utilizing unobservable inputs. During the year ended
October 31, 2010, the Company had no transfers of assets or
liabilities between any of the above hierarchy levels. See
Note 5, 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 swaps are 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 London Interbank Offered Rate forward rates at
the end of the period. See Note 9, Line of Credit
Facility.
Other Financial
Assets and Liabilities
Due to the short-term maturities of the Companys 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 Companys
$450.0 million line of credit approximates its carrying
value of $140.5 million. The carrying value of the
receivables included in non-current assets of discontinued
operations of $1.4 million and in the acquired insurance
deposits related to acquired self-insurance claims of
$36.2 million approximates fair market value.
|
|
5.
|
AUCTION RATE
SECURITIES
|
As of October 31, 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 October 31, 2010 and
October 31, 2009, the estimated fair value of these
securities, in total, was approximately $20.2 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 Companys auction rate
securities at October 31, 2010 and October 31, 2009:
|
|
|
|
|
|
Assumption
|
|
October 31, 2010
|
|
October 31, 2009
|
|
|
Discount rates
|
|
L + 2.50% - L + 18.59%
|
|
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 Companys 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 Companys intent to not sell the
securities; (2) the Companys 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
Companys assumption about the expected life for one
security, at April 30, 2010 the Company recognized an
additional OTTI credit loss of $0.1 million. The Company
had previously recognized an OTTI credit loss of
$1.6 million for this security in the year ended
October 31, 2009. The credit losses were 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
51
represents the Companys 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. No further OTTI were identified.
The following tables present the changes in the cost basis and
fair value of the Companys auction rate securities for the
years ended October 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
(In thousands)
|
|
Cost Basis
|
|
|
(Level 3)
|
|
|
|
|
Balance at beginning of year
|
|
$
|
23,434
|
|
|
$
|
19,531
|
|
Unrealized gains
|
|
|
|
|
|
|
1,075
|
|
Unrealized losses
|
|
|
|
|
|
|
(435
|
)
|
Other-than-temporary
credit loss recognized in earnings
|
|
|
(127
|
)
|
|
|
|
|
|
|
Balance at October 31, 2010
|
|
$
|
23,307
|
|
|
$
|
20,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
(In thousands)
|
|
Cost Basis
|
|
|
(Level 3)
|
|
|
|
|
Balance at beginning of year
|
|
$
|
25,000
|
|
|
$
|
19,031
|
|
Unrealized gains
|
|
|
|
|
|
|
2,544
|
|
Unrealized losses
|
|
|
|
|
|
|
(2,044
|
)
|
Other-than-temporary
credit loss recognized in earnings
|
|
|
(1,566
|
)
|
|
|
|
|
|
|
Balance at October 31, 2009
|
|
$
|
23,434
|
|
|
$
|
19,531
|
|
|
|
The OTTI related to credit losses recognized in earnings for the
year ended October 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of
|
|
|
|
|
|
|
|
Ending balance
|
|
|
OTTI credit losses
|
|
Additions for
|
|
Additional
|
|
|
|
of the amount
|
|
|
recognized for the
|
|
the amount
|
|
increases to the
|
|
Reductions for
|
|
related to credit
|
|
|
auction rate security
|
|
related to
|
|
amount related to
|
|
increases in cash
|
|
losses held at
|
|
|
held at the beginning
|
|
credit loss for
|
|
credit loss for
|
|
flows expected to
|
|
the end of the
|
|
|
of the period for
|
|
which OTTI
|
|
which an
|
|
be collected that
|
|
period for which
|
|
|
which a portion of
|
|
was not
|
|
OTTI was
|
|
are recognized over
|
|
a portion of OTTI
|
|
|
OTTI was recognized
|
|
previously
|
|
previously
|
|
the remaining life
|
|
was recognized
|
(in thousands)
|
|
in OCI
|
|
recognized
|
|
recognized
|
|
of the security
|
|
in OCI
|
|
|
OTTI credit loss recognized for auction rate security
|
|
$
|
1,566
|
|
|
$
|
|
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
1,693
|
|
At October 31, 2010 and 2009, unrealized losses of
$3.1 million ($1.9 million net of tax) and
$3.9 million ($2.3 million net of tax) were recorded
in accumulated other comprehensive loss, respectively.
|
|
6.
|
PROPERTY, PLANT
AND EQUIPMENT
|
Property, plant and equipment at October 31, 2010 and 2009
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Land
|
|
$
|
628
|
|
|
$
|
719
|
|
Buildings
|
|
|
4,922
|
|
|
|
3,440
|
|
Transportation equipment
|
|
|
2,113
|
|
|
|
2,330
|
|
Machinery and other equipment
|
|
|
132,794
|
|
|
|
124,526
|
|
Leasehold improvements
|
|
|
16,367
|
|
|
|
17,984
|
|
Software in development
|
|
|
148
|
|
|
|
456
|
|
|
|
|
|
|
156,972
|
|
|
|
149,455
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
|
|
and amortization
|
|
|
98,884
|
|
|
|
92,563
|
|
|
|
Total
|
|
$
|
58,088
|
|
|
$
|
56,892
|
|
|
|
Depreciation expense on property, plant and equipment in the
years ended October 31, 2010, 2009 and 2008 were
$24.9 million, $21.9 million and $16.3 million,
respectively.
|
|
7.
|
GOODWILL AND
OTHER INTANGIBLES
|
Goodwill
The changes in the carrying amount of goodwill for the years
ended October 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Related to
|
|
|
|
|
|
|
Balance as of
|
|
|
Initial
|
|
|
Contingent
|
|
|
Balance as of
|
|
|
|
October 31,
|
|
|
Payments for
|
|
|
Amounts
|
|
|
October 31,
|
|
(In thousands)
|
|
2009
|
|
|
Acquisitions (1)
|
|
|
and Other
|
|
|
2010
|
|
|
|
|
Janitorial
|
|
$
|
459,068
|
|
|
$
|
11,140
|
|
|
$
|
1,120
|
|
|
$
|
471,328
|
|
Parking
|
|
|
36,841
|
|
|
|
30,160
|
|
|
|
2,167
|
|
|
|
69,168
|
|
Security
|
|
|
47,972
|
|
|
|
1,966
|
|
|
|
|
|
|
|
49,938
|
|
Engineering
|
|
|
3,356
|
|
|
|
|
|
|
|
193
|
|
|
|
3,549
|
|
|
|
Total
|
|
$
|
547,237
|
|
|
$
|
43,266
|
|
|
$
|
3,480
|
|
|
$
|
593,983
|
|
|
|
|
|
|
(1)
|
|
Refer to Note 3,
Acquisitions for additional discussions regarding
acquisitions the Company made in the year ended October 31,
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Related to
|
|
|
|
|
|
|
Balance as of
|
|
|
Initial
|
|
|
Contingent
|
|
|
Balance as of
|
|
|
|
October 31,
|
|
|
Payments for
|
|
|
Amounts
|
|
|
October 31,
|
|
(In thousands)
|
|
2008
|
|
|
Acquisitions (1)
|
|
|
and Other (2)
|
|
|
2009
|
|
|
|
|
Janitorial
|
|
$
|
455,090
|
|
|
$
|
4,412
|
|
|
$
|
(434
|
)
|
|
$
|
459,068
|
|
Parking
|
|
|
32,859
|
|
|
|
|
|
|
|
3,982
|
|
|
|
36,841
|
|
Security
|
|
|
45,649
|
|
|
|
|
|
|
|
2,323
|
|
|
|
47,972
|
|
Engineering
|
|
|
2,174
|
|
|
|
1,182
|
|
|
|
|
|
|
|
3,356
|
|
|
|
Total
|
|
$
|
535,772
|
|
|
$
|
5,594
|
|
|
$
|
5,871
|
|
|
$
|
547,237
|
|
|
|
52
|
|
|
(1)
|
|
Refer to Note 3,
Acquisitions for additional discussions regarding
acquisitions the Company made in the year ended October 31,
2009.
|
|
(2)
|
|
The Janitorial segment includes
contingent payments of $0.7 million related to prior year
acquisitions, offset by $1.2 million of OneSource purchase
price adjustments in the year ended October 31, 2009
relating to professional fees, litigation that commenced prior
to the acquisition, additional workers compensation
insurance liabilities and deferred income taxes.
|
Of the $594.0 million carrying amount of goodwill as of
October 31, 2010, $327.6 million was not amortizable
for income tax purposes because the related businesses were
acquired prior to 1991 or purchased through a tax-free exchange
or stock acquisition.
Intangible
Assets
The changes in the gross carrying amount and accumulated
amortization of intangibles other than goodwill for the years
ended October 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
October 31,
|
|
|
|
|
|
Retirements
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
Retirements
|
|
|
October 31,
|
|
(in thousands)
|
|
2009
|
|
|
Additions
|
|
|
and Other
|
|
|
2010
|
|
|
2009
|
|
|
Additions
|
|
|
and Other
|
|
|
2010
|
|
|
|
|
Customer contracts and relationships
|
|
$
|
97,522
|
|
|
$
|
16,300
|
|
|
$
|
|
|
|
$
|
113,822
|
|
|
$
|
(38,853
|
)
|
|
$
|
(11,099
|
)
|
|
$
|
|
|
|
$
|
(49,952
|
)
|
Trademarks and trade names
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
(3,335
|
)
|
|
|
(110
|
)
|
|
|
|
|
|
|
(3,445
|
)
|
Other (contract rights, etc.)
|
|
|
1,991
|
|
|
|
700
|
|
|
|
|
|
|
|
2,691
|
|
|
|
(1,276
|
)
|
|
|
(216
|
)
|
|
|
|
|
|
|
(1,492
|
)
|
|
|
Total
|
|
$
|
103,663
|
|
|
$
|
17,000
|
|
|
$
|
|
|
|
$
|
120,663
|
|
|
$
|
(43,464
|
)
|
|
$
|
(11,425
|
)
|
|
$
|
|
|
|
$
|
(54,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
October 31,
|
|
|
|
|
|
Retirements
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
|
|
Retirements
|
|
|
October 31,
|
|
(in thousands)
|
|
2008
|
|
|
Additions
|
|
|
and Other
|
|
|
2009
|
|
|
2008
|
|
|
Additions
|
|
|
and Other
|
|
|
2009
|
|
|
|
|
Customer contracts and relationships
|
|
$
|
88,344
|
|
|
$
|
9,178
|
|
|
$
|
|
|
|
$
|
97,522
|
|
|
$
|
(27,981
|
)
|
|
$
|
(10,872
|
)
|
|
$
|
|
|
|
$
|
(38,853
|
)
|
Trademarks and trade names
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
(3,022
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
(3,335
|
)
|
Other (contract rights, etc.)
|
|
|
2,256
|
|
|
|
226
|
|
|
|
(491
|
)
|
|
|
1,991
|
|
|
|
(1,568
|
)
|
|
|
(199
|
)
|
|
|
491
|
|
|
|
(1,276
|
)
|
|
|
Total
|
|
$
|
94,750
|
|
|
$
|
9,404
|
|
|
$
|
(491
|
)
|
|
$
|
103,663
|
|
|
$
|
(32,571
|
)
|
|
$
|
(11,384
|
)
|
|
$
|
491
|
|
|
$
|
(43,464
|
)
|
|
|
Of the $65.8 million net carrying amount of intangibles
other than goodwill as of October 31, 2010,
$31.3 million was not amortizable for income tax purposes
because the related businesses were purchased through tax-free
stock acquisitions.
The weighted average remaining lives as of October 31, 2010
and the amortization expense of intangibles for the years ended
October 31, 2010, 2009 and 2008, as well as the estimated
amortization expense for such intangibles for each of the five
succeeding fiscal years, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Amortization Expense
|
|
|
Estimated Amortization Expense
|
|
|
|
Life
|
|
|
Years Ended October 31,
|
|
|
Years Ending October 31,
|
|
($ in thousands)
|
|
(Years)
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
Customer contracts and relationships
|
|
|
11.2
|
|
|
$
|
11,099
|
|
|
$
|
10,872
|
|
|
$
|
10,895
|
|
|
$
|
11,861
|
|
|
$
|
10,456
|
|
|
$
|
9,082
|
|
|
$
|
7,851
|
|
|
$
|
6,656
|
|
Trademarks and trade names
|
|
|
7.4
|
|
|
|
110
|
|
|
|
313
|
|
|
|
668
|
|
|
|
110
|
|
|
|
110
|
|
|
|
110
|
|
|
|
110
|
|
|
|
110
|
|
Other (contract rights, etc.)
|
|
|
6.2
|
|
|
|
216
|
|
|
|
199
|
|
|
|
172
|
|
|
|
449
|
|
|
|
329
|
|
|
|
182
|
|
|
|
92
|
|
|
|
28
|
|
|
|
Total
|
|
|
11.0
|
|
|
$
|
11,425
|
|
|
$
|
11,384
|
|
|
$
|
11,735
|
|
|
$
|
12,420
|
|
|
$
|
10,895
|
|
|
$
|
9,374
|
|
|
$
|
8,053
|
|
|
$
|
6,794
|
|
|
|
The Company is subject to certain insurable risks such as
workers compensation, general liability, automobile and
property damage. The Company maintains commercial insurance
policies that provide $150.0 million (or $75.0 million
with respect to claims acquired from OneSource in the year ended
October 31, 2008) of coverage for certain risk
exposures above the Companys deductibles (i.e.,
self-insurance retention limits). For claims incurred after
November 1, 2002, substantially all of the self-insured
retentions increased from $0.5 million per occurrence
(inclusive of allocated loss adjustment expenses) to
$1.0 million per occurrence (exclusive of allocated loss
adjustment expenses), except for California workers
compensation insurance which increased to $2.0 million, in
the aggregate, from April 14, 2003 to April 14, 2005
($1.0 million per occurrence, plus an additional
$1.0 million annually in the aggregate). The Company
allocates current-year insurance expense to its operating
segments based upon
53
their underlying exposures. In the fourth quarter of 2010, the
Company recorded an adjustment to increase insurance-related
other assets for approximately $1.0 million, net of taxes,
relating to immaterial errors that originated in prior periods.
Since the errors were not material to the current period or any
prior period, the Company recorded the
out-of-period
correction in its fourth quarter 2010 results.
The table below summarizes the self-insurance reserve
adjustments resulting from periodic actuarial evaluations of
ultimate losses relating to prior years during the years ended
October 31, 2010, 2009 and 2008. Such amounts are not
allocated to the Companys operating segments and are
recorded in the Corporate segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Major programs (1)
|
|
$
|
799
|
|
|
$
|
9,435
|
|
|
$
|
(22,500
|
)
|
Minor programs (2)
|
|
|
417
|
|
|
|
|
|
|
|
(310
|
)
|
|
|
Total
|
|
$
|
1,216
|
|
|
$
|
9,435
|
|
|
$
|
(22,810
|
)
|
|
|
|
|
|
(1)
|
|
As described above, the Company is
self-insured for workers compensation, general liability,
automobile, and property damage. During 2008, evaluations
covering substantially all of the Companys self-insurance
reserves showed net favorable developments in claims incurred in
prior years for general liability, California workers
compensation and workers compensation outside of
California. This resulted in a reduction in self-insurance
reserves recorded in 2008. Many of the favorable trends observed
during 2008 did not continue during 2009 and 2010.
|
|
(2)
|
|
Separate evaluations of insurance
reserves related to certain Janitorial and Parking locations
showed favorable claims developments in 2008, resulting in
benefits, and unfavorable claims developments in 2010, resulting
in increased losses, attributable to claims incurred in prior
years.
|
At October 31, 2010, the Company had $100.8 million in
standby letters of credit (primarily related to its
workers compensation, general liability, automobile, and
property damage programs), $36.2 million in restricted
insurance deposits and $112.5 million in surety bonds
supporting unpaid insurance claim liabilities. At
October 31, 2009, the Company had $118.6 million in
standby letters of credit, $42.5 million in restricted
insurance deposits and $103.2 million in surety bonds
supporting unpaid insurance claim liabilities.
|
|
9.
|
LINE OF CREDIT
FACILITY
|
In 2008, the Company entered into a $450.0 million
five-year syndicated line of credit that was scheduled to expire
on November 14, 2012 (the old Facility). The
old Facility was available for working capital, the issuance of
standby letters of credit, the financing of capital
expenditures, and other general corporate purposes.
Under the old Facility, no compensating balances were required
and the interest rate was determined at the time of borrowing
based on the London Interbank Offered Rate (LIBOR)
plus a spread of 0.625% to 1.375% or, at the Companys
election, at the higher of the federal funds rate plus 0.5% and
the Bank of America prime rate (Alternate Base Rate)
plus a spread of 0.000% to 0.375%. The old Facility called for a
non-use fee payable quarterly, in arrears, of 0.125% to 0.250%
of the average daily unused portion of the old Facility. For
purposes of this calculation, irrevocable standby letters of
credit issued primarily in conjunction with the Companys
self-insurance program and cash borrowings were included as
usage of the old Facility. The spreads for LIBOR, Alternate Base
Rate and IBOR borrowings and the non-use fee percentage were
based on the Companys leverage ratio. The old Facility
permitted the Company to request an increase in the amount of
the line of credit by up to $100.0 million (subject to
receipt of commitments for the increased amount from existing
and new lenders).
As of October 31, 2010, the total outstanding amounts under
the old Facility in the form of cash borrowings and standby
letters of credit were $140.5 million and
$100.8 million, respectively.
The old Facility included covenants limiting liens,
dispositions, fundamental changes, investments, indebtedness,
and certain transactions and payments. In addition, the Facility
also required that the Company maintain three financial
covenants: (1) a fixed charge coverage ratio greater than
or equal to 1.50 to 1.0 at any time; (2) a leverage ratio
of less than or equal to 3.25 to 1.0 at each fiscal quarter-end;
and (3) a consolidated net worth of greater than or equal
to the sum of (i) $475.0 million, (ii) an amount
equal to 50% of the consolidated net income earned in each full
fiscal quarter ending after November 14, 2007 (with no
deduction for a net loss in any such fiscal quarter), and
(iii) an amount equal to 100% of the aggregate increases in
stockholders equity of the Company after November 14,
2007 by reason of the issuance and sale of capital stock or
other equity interests of the Company or any subsidiary,
including upon any conversion of debt securities of the Company
into such capital stock or other equity interests, but excluding
by reason of the issuance and sale of capital stock pursuant to
the Companys employee stock purchase plans, employee stock
option plans and similar programs. The Company was in compliance
with all covenants under the old Facility as of October 31,
2010.
On November 30, 2010, the Company terminated the old
Facility and replaced it with a new $650 million
54
five year syndicated line of credit (the new
Facility). The new Facility is scheduled to expire on
November 30, 2015, with the option to increase the size of
the new Facility to $850 million at any time prior to the
expiration (subject to receipt of commitments for the increased
amount from existing and new lenders). See Note 16,
Subsequent Events, for additional information.
On February 19, 2009, the Company entered into a two-year
interest rate swap agreement with an underlying notional amount
of $100.0 million, pursuant to which the Company receives
variable interest payments based on LIBOR and pays fixed
interest at a rate of 1.47%.
On October 19, 2010, the Company entered into a three-year
forward starting interest rate swap agreement with an underlying
notional amount of $25.0 million, pursuant to which the
Company receives variable interest payments based on LIBOR and
pays fixed interest at a rate of 0.89%. The effective date of
the hedge is February 24, 2011.
These swaps are intended to hedge the interest risk associated
with the Companys forecasted floating-rate, LIBOR-based
debt. As of October 31, 2010, the critical terms of the
swaps match the terms of the debt, resulting in no hedge
ineffectiveness. On an ongoing basis (no less than once each
quarter), the Company assesses whether its LIBOR-based interest
payments are probable of being paid during the life of the
hedging relationship. The Company also assesses the counterparty
credit risk, including credit ratings and potential
non-performance of the counterparties, when determining the fair
value of the swaps.
As of October 31, 2010, the fair value of the interest rate
swaps was a $0.4 million liability, of which
$0.3 million and $0.1 million were included in Other
accrued liabilities and Retirement plans and other,
respectively, on the accompanying consolidated balance sheet.
The effective portion of these cash flow hedges is recorded as
accumulated other comprehensive loss in the Companys
accompanying consolidated balance sheet and reclassified into
interest expense in the Companys accompanying consolidated
statements of income in the same period during which the hedged
transactions affect earnings. Any ineffective portion of the
hedges is recorded immediately to interest expense. No
ineffectiveness existed at October 31, 2010. The amount
included in accumulated other comprehensive loss is
$0.4 million ($0.3 million, net of taxes).
|
|
10.
|
EMPLOYEE BENEFIT
PLANS
|
As of October 31, 2010, the Company had the following
defined benefit and other post-retirement benefit plans, which
provide benefits based primarily on years of service and
employee earnings and which have been previously amended to
preclude new participants:
Supplemental Executive Retirement Plan. The Company
has unfunded retirement agreements for certain current and
former senior executives. The retirement agreements provide for
monthly benefits for ten years commencing at the later of the
respective retirement dates of those executives or age 65.
The benefits are accrued over the vesting period. Effective
December 31, 2002, this plan was amended to preclude new
participants.
Service Award Benefit Plan. The Company has an
unfunded service award benefit plan that meets the definition of
a severance pay plan as defined by the Employee
Retirement Income Security Act of 1974, as amended
(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. Effective January 1, 2002, no new
participants were permitted under this plan. The Company will
continue to incur interest costs related to this plan as the
value of the previously earned benefits continues to increase.
OneSource Employees Retirement Pension Plan
(OneSource Pension Plan). The Company
acquired OneSource on November 14, 2007, which sponsored a
funded, qualified employee retirement plan. The plan was amended
to preclude participation and benefit accruals several years
prior to the acquisition.
Death Benefit Plan. The Companys unfunded
Death Benefit Plan covers certain qualified employees upon
retirement on, or after, the employees 62nd birthday.
This plan provides 50% of the death benefit that the employee
was entitled to prior to retirement, subject to a maximum of
$150,000. Coverage commencing upon retirement, or 62nd birthday,
continues until death for retired employees hired before
September 2, 1980. On March 1, 2003, the
post-retirement death benefit for any active employees hired
after September 1, 1980 was eliminated. Active employees
hired before September 1, 1980 who retire on or after their
62nd birthday will continue to be covered between
retirement and death. For certain plan participants who retired
before March 1, 2003, the post-retirement death benefit
continues until the retired employees 70th birthday.
An exemption to the age 62 retirement rule has
been made for certain employees who were terminated as a result
of the Companys restructuring to a corporate shared
service center.
55
OneSource Post-Retirement Medical and Life Benefit
Plan. OneSource sponsored a post-retirement benefit
plan that provides medical and life insurance benefits to
certain OneSource retirees. Since the date of acquisition, new
participants have been precluded from participation.
Benefit
Obligation and Net Obligation Recognized in Financial
Statements
The significant components of the above mentioned plans as of
and for the years ended October 31, 2010 and 2009 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans at October 31,
|
|
|
Post-Retirement Benefit Plan at October 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
11,528
|
|
|
$
|
12,468
|
|
|
$
|
5,273
|
|
|
$
|
4,076
|
|
Service cost
|
|
|
44
|
|
|
|
42
|
|
|
|
15
|
|
|
|
12
|
|
Interest cost
|
|
|
592
|
|
|
|
811
|
|
|
|
281
|
|
|
|
276
|
|
Actuarial loss
|
|
|
1,126
|
|
|
|
27
|
|
|
|
143
|
|
|
|
1,024
|
|
Benefits and expenses paid
|
|
|
(1,272
|
)
|
|
|
(1,820
|
)
|
|
|
(415
|
)
|
|
|
(115
|
)
|
|
|
Benefit obligation at end of year
|
|
$
|
12,018
|
|
|
$
|
11,528
|
|
|
$
|
5,297
|
|
|
$
|
5,273
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
4,736
|
|
|
$
|
3,748
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
615
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
1,510
|
|
|
|
2,172
|
|
|
|
415
|
|
|
|
115
|
|
Benefits and expenses paid
|
|
|
(1,272
|
)
|
|
|
(1,820
|
)
|
|
|
(415
|
)
|
|
|
(115
|
)
|
|
|
Fair value of plan assets at end of year
|
|
$
|
5,589
|
|
|
$
|
4,736
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Unfunded status at end of year
|
|
$
|
(6,429
|
)
|
|
$
|
(6,792
|
)
|
|
$
|
(5,297
|
)
|
|
$
|
(5,273
|
)
|
|
|
Current liabilities
|
|
|
(1,001
|
)
|
|
|
(1,135
|
)
|
|
|
(277
|
)
|
|
|
(347
|
)
|
Non-current liabilities
|
|
|
(5,428
|
)
|
|
|
(5,657
|
)
|
|
|
(5,020
|
)
|
|
|
(4,926
|
)
|
|
|
Net obligation
|
|
$
|
(6,429
|
)
|
|
$
|
(6,792
|
)
|
|
$
|
(5,297
|
)
|
|
$
|
(5,273
|
)
|
|
|
Total affecting retained earnings
|
|
$
|
(4,936
|
)
|
|
$
|
(6,052
|
)
|
|
$
|
(5,347
|
)
|
|
$
|
(5,466
|
)
|
Amount recognized in accumulated other comprehensive income
|
|
|
(1,493
|
)
|
|
|
(740
|
)
|
|
|
50
|
|
|
|
193
|
|
|
|
Net obligation
|
|
$
|
(6,429
|
)
|
|
$
|
(6,792
|
)
|
|
$
|
(5,297
|
)
|
|
$
|
(5,273
|
)
|
|
|
Components of Net
Periodic Benefit Cost Recognized in the Accompanying
Consolidated Statement of Income
The components of net periodic benefit cost of the defined
benefit and other post-retirement benefit plans for the years
ended October 31, 2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Defined Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
44
|
|
|
$
|
42
|
|
|
$
|
43
|
|
Interest
|
|
|
592
|
|
|
|
811
|
|
|
|
820
|
|
Expected return on assets
|
|
|
(399
|
)
|
|
|
(321
|
)
|
|
|
(386
|
)
|
Amortization of actuarial loss
|
|
|
66
|
|
|
|
115
|
|
|
|
119
|
|
Settlement loss recognized
|
|
|
91
|
|
|
|
349
|
|
|
|
|
|
|
|
Net expense
|
|
$
|
394
|
|
|
$
|
996
|
|
|
$
|
596
|
|
|
|
Post-Retirement Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
15
|
|
|
$
|
12
|
|
|
$
|
19
|
|
Interest
|
|
|
281
|
|
|
|
276
|
|
|
|
266
|
|
Amortization of actuarial gain
|
|
|
|
|
|
|
(202
|
)
|
|
|
(99
|
)
|
|
|
Net expense
|
|
$
|
296
|
|
|
$
|
86
|
|
|
$
|
186
|
|
|
|
In the year ending October 31, 2011, the Company expects to
recognize, on a pre-tax basis, less than $0.1 million of
net actuarial gains as a component of net periodic benefit cost.
Assumptions
The weighted average assumptions used to determine benefit
obligations and net periodic benefit cost for the years ended
October 31, 2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Benefit
|
|
|
|
Defined Benefit Plans
|
|
|
Plan
|
|
|
|
2010
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions to measure net
periodic cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50%
|
|
|
|
7.00%
|
|
|
|
6.00%
|
|
|
|
5.50%
|
|
|
|
7.00%
|
|
|
|
6.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of health care cost increase
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
5.50%
|
|
|
|
6.00%
|
|
|
|
6.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of return on plan assets
|
|
|
8.00%
|
|
|
|
8.00%
|
|
|
|
8.00%
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions to measure obligation at year end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.50% - 4.98%
|
|
|
|
5.50%
|
|
|
|
7.00%
|
|
|
|
4.31% - 5.02%
|
|
|
|
5.50%
|
|
|
|
7.00%
|
|
|
|
The discount rate is used for determining future net periodic
benefit cost. The Companys discount rates were determined,
as of the October 31, 2010 measurement date, using the
individual cash flows of each plan. In determining the long-term
rate of return for a plan, the Company considers the nature of
the plans
56
investments, historical rates of return, and an expectation for
the plans investment strategies. All defined benefit and
post-retirement plans have been amended to preclude new
participants. The Company believes changes in assumptions would
not have a material impact on the Companys financial
position and operating performance. The Company expects to fund
payments required under the plans with cash flows from operating
activities when due in accordance with the plan.
Expected Future
Benefit Payments
The expected future benefit payments were calculated using the
same assumptions used to measure the Companys benefit
obligation as of October 31, 2010. This expectation is
based upon expected future service:
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
|
|
|
Post-Retirement
|
|
(In thousands)
|
|
Benefit Plans
|
|
|
Benefit Plan
|
|
|
|
|
2011
|
|
$
|
1,444
|
|
|
$
|
277
|
|
2012
|
|
|
972
|
|
|
|
287
|
|
2013
|
|
|
892
|
|
|
|
297
|
|
2014
|
|
|
781
|
|
|
|
309
|
|
2015
|
|
|
853
|
|
|
|
320
|
|
2016 through 2020
|
|
$
|
3,823
|
|
|
$
|
1,777
|
|
|
|
OneSource Pension
Plan
The OneSource Pension Plan is a funded benefit plan that
requires an estimate of the long-term rate of return on plan
assets to measure benefit obligations. The expected long-term
rate of return on plan assets represents the rate of earnings
expected in the funds invested to provide for anticipated
benefit payments. With input from the Companys investment
advisors and actuaries, the Company has analyzed the expected
rates of return on assets and determined that an estimated
long-term rate of return of 8.0% is reasonable based on:
(1) the current and expected asset allocations;
(2) the plans historical investment performance; and
(3) best estimates for future investment performance. The
obligation attributable to medical benefits is small, as is the
future obligation that varies with changes in compensation.
Accordingly, changes in the health care trend assumption rate
and the compensation increase assumption have an immaterial
impact on measuring the obligation.
The investment objectives for the assets associated with the
OneSource Pension Plan are to maintain acceptable levels of risk
through the diversification of assets among asset classes and to
optimize long-term returns. The Company is responsible for
selecting investment managers, setting asset allocation targets
and monitoring asset allocations and investment performance. The
Companys external investment professionals have the
authority to manage assets within pre-established asset
allocation ranges set by the Company. The OneSource Pension Plan
is the Companys only funded defined benefit plan.
The target allocation ranges and asset allocations for the year
ended October 31, 2010 were:
|
|
|
|
|
|
|
|
Target
|
|
Percentage of
|
Asset Category
|
|
Allocation
|
|
Plan Assets
|
|
|
Equity
|
|
53% - 73%
|
|
53%
|
Fixed Income
|
|
27% - 47%
|
|
47%
|
|
|
|
|
|
|
100%
|
|
|
The following table presents the Companys hierarchy for
the assets associated with the OneSource Pension Plan measured
at fair value as of October 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
|
|
|
Using Inputs Considered
|
|
|
|
Fair Value at
|
|
|
as
|
|
(In thousands)
|
|
October 31, 2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
924
|
|
|
$
|
924
|
|
|
$
|
|
|
|
$
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large-Cap Growth
|
|
|
1,095
|
|
|
|
1,095
|
|
|
|
|
|
|
|
|
|
Large-Cap Value
|
|
|
1,095
|
|
|
|
1,095
|
|
|
|
|
|
|
|
|
|
Small/Mid-Cap Growth
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
Small/Mid-Cap Value
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
International Equity
|
|
|
466
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Bond
|
|
|
159
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
Intermediate Bond
|
|
|
794
|
|
|
|
794
|
|
|
|
|
|
|
|
|
|
Short-Term Bond
|
|
|
776
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,589
|
|
|
$
|
5,589
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Deferred
Compensation Plans
The Company accounts for deferred compensation and accrues
interest thereon for employees who elect to participate in one
of the following Company plans:
Employee Deferred Compensation Plan. This plan
is available to executive, management, administrative and sales
employees who have an annualized base salary that equals or
exceeds $135,000 for the year ended October 31, 2010. This
plan allows employees to defer 1% to 50% of their pre-tax
compensation. The average rate of interest earned by the
employees in this plan was 3.25%, 3.31% and 5.09% for the years
ending October 31, 2010, 2009 and 2008, respectively.
Director Deferred Compensation Plan. This plan
allows directors to defer receipt of all or any portion of the
compensation that he or she would otherwise receive from the
Company. The average rate of interest earned by the directors in
this plan was 3.25%, 3.31%, and 5.09% for the years ending
October 31, 2010, 2009, and 2008, respectively.
The deferred compensation under both the Employee and Director
Deferred Compensation Plans
57
earns interest equal to the prime interest rate on the last day
of the calendar quarter. If the prime rate exceeds 6%, the
interest rate is equal to 6% plus one half of the excess over
6%. Interest earned under both deferred compensation plans is
capped at 120% of the long-term applicable federal rate as
discussed in the plans.
OneSource Deferred Compensation Plan. The
Company acquired OneSource on November 14, 2007, which
sponsored a deferred compensation plan. Under this deferred
compensation plan, a Rabbi Trust was created to fund the
obligation. The plan requires the Company to contribute 50% of
the participants deferred compensation contributions but
only to the extent that the deferred contribution does not
exceed 5% of the participants compensation for the
contribution allocation period. This liability is adjusted, with
a corresponding charge (or credit) to the deferred compensation
cost, to reflect changes in the fair value. On December 31,
2008, the plan was amended to preclude new participants. The
assets of $5.7 million held in the rabbi trust are not
available for general corporate purposes.
Aggregate expense recognized under these deferred compensation
plans for the years ended October 31, 2010, 2009 and 2008
were $0.4 million, $0.3 million and $0.5 million,
respectively. The total long-term liability of all deferred
compensation plans at October 31, 2010 and 2009 was
$15.3 million and $15.0 million, respectively, and is
included in Retirement plans and other on the accompanying
consolidated balance sheet.
401(k)
Plan
The Company has two 401(k) savings plans covering certain
employees, as set forth in the respective plan documents. These
401(k) plans are subject to the applicable provisions of ERISA.
The Company matches a portion of the participants
contributions after the participant has met the eligibility
requirements under a predetermined formula based on the
participants contribution level. The Company made matching
401(k) contributions required by the 401(k) plans during the
years ended October 31, 2010, 2009 and 2008 in the amounts
of $6.2 million, $6.2 million and $5.9 million,
respectively.
Pension Plans
Under Collective Bargaining
Certain qualified employees of the Company are covered under
union-sponsored multi-employer defined benefit plans.
Contributions paid for these plans were $58.2 million,
$47.9 million and $47.7 million during the years ended
October 31, 2010, 2009 and 2008, respectively. These plans
are not administered by the Company and contributions are
determined in accordance with provisions of negotiated labor
contracts.
|
|
11.
|
COMMITMENTS AND
CONTINGENCIES
|
Lease
Commitments
The Company is contractually obligated to make future payments
under non-cancelable operating lease agreements for various
facilities, vehicles, and other equipment. As of
October 31, 2010, future minimum lease commitments
(excluding contingent rentals) under non-cancelable operating
leases for the fiscal years ending October 31 are as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
2011
|
|
$
|
59,480
|
|
2012
|
|
|
46,759
|
|
2013
|
|
|
37,657
|
|
2014
|
|
|
27,394
|
|
2015
|
|
|
15,412
|
|
Thereafter
|
|
|
17,626
|
|
|
|
Total minimum lease commitments
|
|
$
|
204,328
|
|
|
|
Rental expense for continuing operations for the years ended
October 31, 2010, 2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Minimum rentals
|
|
$
|
69,571
|
|
|
$
|
63,774
|
|
|
$
|
60,546
|
|
Contingent rentals
|
|
|
36,631
|
|
|
|
38,522
|
|
|
|
39,642
|
|
|
|
|
|
$
|
106,202
|
|
|
$
|
102,296
|
|
|
$
|
100,188
|
|
|
|
Contingent rentals are applicable to leases of parking lots and
garages and are primarily based on percentages of the gross
receipts or other financial parameters attributable to the
related facilities.
IBM Master
Professional Services Agreement
On September 29, 2006, the Company entered into a Master
Professional Services Agreement (the Services
Agreement) with International Business Machines
Corporation (IBM) that became effective
October 1, 2006. Under the Services Agreement, IBM was
responsible for substantially all of the Companys
information technology infrastructure and support services. In
2007, the Company entered into additional agreements with IBM to
provide assistance, support and post-implementation services
relating to the upgrade of the Companys accounting systems
and the implementation of a new payroll system and human
resources information system. The Company entered into
additional agreements with IBM to provide information technology
systems integration and data center support services through
2009. During the fourth quarter of 2008, the Company assessed
the services provided by
58
IBM to determine whether the services provided and the level of
support was consistent with the Companys strategic
objectives. Based upon this assessment, the Company determined
that some or all of the services provided under the Services
Agreement would be transitioned from IBM. In connection with
this assessment, the Company wrote off $6.3 million of
deferred costs in 2008.
On January 20, 2009, the Company and IBM entered into a
binding Memorandum of Understanding (the MOU),
pursuant to which the Company and IBM agreed to:
(1) terminate certain services then provided by IBM to the
Company under the Services Agreement; (2) transition the
terminated services to the Company
and/or its
designee; (3) resolve certain other disputes arising under
the Services Agreement; and (4) modify certain terms
applicable to services that IBM will continue to provide to the
Company. In connection with the execution of the MOU, the
Company delivered to IBM a formal notice terminating for
convenience certain information technology and support services
effective immediately (the Termination).
Notwithstanding the Termination, the MOU contemplated
(1) IBM would assist the Company with the transition of the
terminated services to the Company or its designee pursuant to
an agreement (the Transition Agreement) to be
executed by the Company and IBM and (2) the continued
provision by IBM of certain data center support services. On
February 24, 2009, the Company and IBM entered into an
amended and restated agreement, which amended the Services
Agreement (the Amended Agreement), and the
Transition Agreement, which memorializes the termination-related
provisions of the MOU as well as other terms related to the
transition services. Under the Amended Agreement, the base fee
for the provision of the defined data center support services is
$18.8 million payable over the service term (March 2009
through December 2013).
In connection with the Termination, the Company agreed to:
(1) reimburse IBM for certain actual employee severance
costs, up to a maximum of $0.7 million, provided the
Company extended comparable offers of employment to a minimum
number of IBM employees; (2) reimburse IBM for certain
early termination costs, as defined, including third-party
termination fees
and/or
wind-down costs totaling approximately $0.4 million
associated with software, equipment
and/or
third-party contracts used by IBM in performing the terminated
services; and (3) pay IBM fees and expenses for requested
transition assistance, which were estimated to be approximately
$0.4 million.
As of October 31, 2010, future commitments related to the
IBM Amended Agreement for the succeeding fiscal years were as
follows:
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
2011
|
|
$
|
3,977
|
|
2012
|
|
|
3,332
|
|
2013
|
|
|
3,007
|
|
2014
|
|
|
495
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
Total
|
|
$
|
10,811
|
|
|
|
Guarantees/Indemnifications
The Company has applied the measurement and disclosure
provisions outlined in the FASB guidance related to
guarantors accounting and disclosure requirements for
guarantees, including indirect guarantees of the indebtedness of
others, included in ASC 460 Guarantees
(ASC 460) to agreements that contain guarantee and
certain indemnification clauses. ASC 460 requires that upon
issuance of a guarantee, the guarantor must disclose and
recognize a liability for the fair value of the obligation it
assumes under the guarantee. As of October 31, 2010 and
2009, the Company did not have any material guarantees that were
issued or modified subsequent to October 31, 2002.
However, the Company is party to a variety of agreements under
which it may be obligated to indemnify the other party for
certain matters. Primarily, these agreements are standard
indemnification arrangements in its ordinary course of business.
Pursuant to these arrangements, the Company may agree to
indemnify, hold harmless and reimburse the indemnified parties
for losses suffered or incurred by the indemnified party,
generally its clients, in connection with any claims arising out
of the services that the Company provides. The Company also
incurs costs to defend lawsuits or settle claims related to
these indemnification arrangements and in most cases these costs
are paid from its insurance program. The terms of these
indemnification arrangements are generally perpetual. Although
the Company attempts to place limits on this indemnification
reasonably related to the size of the contract, the maximum
obligation may not be explicitly stated and, as a result, the
maximum potential amount of future payments the Company could be
required to make under these arrangements is not determinable.
The Companys certificate of incorporation and bylaws may
require it to indemnify Company directors and officers against
liabilities that may arise by reason of their status as such and
to advance their expenses incurred as a result of any legal
proceeding against
59
them as to which they could be indemnified. The Company has also
entered into indemnification agreements with its directors to
this effect. The overall amount of these obligations cannot be
reasonably estimated; however, the Company believes that any
loss under these obligations would not have a material adverse
effect on the Companys financial position, results of
operations or cash flows. The Company currently has
directors and officers insurance, which has a
deductible of up to $1.0 million.
Contingencies
The Company has been named 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
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 is a defendant in several purported class action
lawsuits related to alleged violations of federal or state
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 state law. In all
cases, the plaintiffs generally seek unspecified monetary
damages, injunctive relief or both.
The Company accrues amounts it believes are adequate to address
any liabilities related to litigation and arbitration
proceedings and to 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 proceeding 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
October 31, 2010 was $4.2 million.
The Company was 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
alleged sexual harassment and retaliation. The case involved
both Title VII federal law claims and California state law
claims. In June 2010, the Company agreed to a settlement of
$5.8 million for the Morales case. On September 27,
2010, the court accepted the settlement agreement and dismissed
the case. Under the terms of the settlement, ABM also agreed to
enter into a consent decree requiring a subsidiary to, among
other things, track sexual harassment claims and monitor
compliance with certain applicable laws.
|
|
12.
|
SHARE-BASED
COMPENSATION PLANS
|
Compensation expense and related income tax benefit in
connection with the Companys share-based compensation
plans for the years ended October 31, 2010, 2009 and 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Share-based compensation expense recognized in selling, general
and administrative expenses before income taxes
|
|
$
|
4,071
|
|
|
$
|
7,411
|
|
|
$
|
7,195
|
|
Income tax benefit
|
|
|
(1,691
|
)
|
|
|
(3,025
|
)
|
|
|
(2,764
|
)
|
|
|
Total share-based compensation expense after income taxes
|
|
$
|
2,380
|
|
|
$
|
4,386
|
|
|
$
|
4,431
|
|
|
|
In July 2010, the Company determined that the financial
performance targets, which were established in connection with
certain performance share grants, were no longer probable of
achievement. As a result, the Company reversed approximately
$3.4 million ($2.0 million, net of taxes) of
previously recorded share-based compensation expense in July
2010. This adjustment was recorded in selling, general and
administrative expenses.
The total shares exercised for all share-based compensation
plans was 850,855, 494,843 and 728,332 during the years ended
October 31, 2010, 2009 and 2008, respectively. The total
intrinsic value of the shares exercised was $8.4 million,
$3.0 million and $6.3 million for the years ended
October 31, 2010, 2009 and 2008, respectively. The total
fair value of shares that vested during the years ended
October 31, 2010, 2009 and 2008 was $8.1 million,
$3.8 million and $3.1 million, respectively.
The Company has five share-based compensation plans and an
employee stock purchase plan which are described below.
60
2006 Equity
Incentive Plan
On May 2, 2006, the stockholders of the Company approved
the 2006 Equity Incentive Plan (the 2006 Equity
Plan). Prior to the adoption of the 2006 Equity Plan,
stock option awards were made under the Time-Vested Incentive
Stock Option Plan (the Time-Vested Plan), the 1996
Price-Vested Performance Stock Option Plan (the 1996
Price-Vested Plan) and the 2002 Price-Vested Performance
Stock Option Plan (the 2002 Price-Vested Plan and
collectively with the Time-Vested Plan and the 1996 Price-Vested
Plan, the Prior Plans). The 2006 Equity Plan
provides for the issuance of awards for 2,500,000 shares of
the Companys common stock plus the remaining shares
authorized but not issued under the Prior Plans as of
May 2, 2006, plus forfeitures under the Prior Plans after
that date. No further grants can be made under the Prior Plans.
On March 3, 2009, the shareholders authorized an additional
2,750,000 shares to be issued under the 2006 Equity Plan.
At October 31, 2010, 1,720,692 shares were available
for award under the 2006 Equity Plan. The terms and conditions
governing existing options under the Prior Plans will continue
to apply to the options outstanding under those plans. The 2006
Equity Plan is an omnibus plan that provides for a
variety of equity and equity-based award vehicles, including
stock options, stock appreciation rights, restricted stock units
(RSUs), performance shares, and other share-based
awards. Shares subject to awards that terminate without vesting
or exercise may be reissued. Certain of the awards available
under the 2006 Equity Plan may qualify as
performance-based compensation under Internal
Revenue Code Section 162(m)
(Section 162(m)). The status of the stock
options, RSUs and performance shares granted under the 2006
Equity Plan as of October 31, 2010 are summarized below.
Stock
Options
The nonqualified stock options issued under the 2006 Equity Plan
vest and become exercisable either at a rate of 25% per year
beginning one year after date of grant or 100% on the fifth
anniversary of the award and expire seven years after the date
of grant, depending on the terms of the awards granted. Stock
options granted to certain executive officers on March 31,
2010 will vest on the fifth anniversary of the award.
Stock option activity in the year ended October 31, 2010 is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
(in years)
|
|
|
(In thousands)
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
710
|
|
|
$
|
19.85
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
510
|
|
|
|
21.34
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11
|
)
|
|
|
19.61
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(10
|
)
|
|
|
19.58
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010
|
|
|
1,199
|
|
|
$
|
20.49
|
|
|
|
5.14
|
|
|
$
|
2,767
|
|
|
|
Vested and exercisable at October 31, 2010
|
|
|
398
|
|
|
$
|
20.17
|
|
|
|
3.75
|
|
|
$
|
1,164
|
|
|
|
As of October 31, 2010, there was $3.4 million of
total unrecognized compensation cost (net of estimated
forfeitures) related to unvested stock options under the 2006
Equity Plan. The cost is expected to be recognized on a
straight-line basis over a weighted-average vesting period of
2.47 years.
The Company estimates the fair value of each option award on the
date of grant using the Black-Scholes option valuation model.
The Company estimates forfeiture rates based on historical data
and adjusts the rates periodically or as needed. The adjustment
of the forfeiture rate may result in a cumulative adjustment in
any period in which the forfeiture rate estimate is changed.
During the year ended October 31, 2010, the Company
adjusted its forfeiture rate to align the estimate with expected
forfeitures, and the effect of such adjustment was immaterial.
The assumptions used in the option valuation model for the years
ended October 31, 2010, 2009 and 2008 are shown in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Expected life from the date of grant (1)
|
|
|
5.6 years
|
|
|
|
5.7 years
|
|
|
|
5.7 years
|
|
Expected stock price volatility (2)
|
|
|
38.5% - 39.0%
|
|
|
|
35.2
|
%
|
|
|
30.4
|
%
|
Expected dividend yield (3)
|
|
|
2.6% - 2.7%
|
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
Risk-free interest rate (4)
|
|
|
1.7% - 2.6%
|
|
|
|
1.7
|
%
|
|
|
3.2
|
%
|
Weighted average fair value of option grants
|
|
$
|
6.37
|
|
|
$
|
4.82
|
|
|
$
|
5.06
|
|
|
|
|
|
|
(1)
|
|
The expected life for options
granted under the 2006 Equity Plan is based on observed
historical exercise patterns of the previously granted options
adjusted to reflect the change in vesting and expiration dates.
|
|
(2)
|
|
The expected volatility is based on
considerations of implied volatility from publicly traded and
quoted options on the Companys common stock and the
historical volatility of the Companys common stock.
|
|
(3)
|
|
The dividend yield is based on the
historical dividend yield over the expected term of the options
granted.
|
|
(4)
|
|
The risk-free interest rate is
based on the continuous compounded yield on U.S. Treasury
Constant Maturity Rates with a remaining term equal to the
expected term of the option.
|
61
RSUs
RSUs granted to directors will be settled in shares of the
Companys common stock with respect to one-third of the
underlying shares on the first, second and third anniversaries
of the annual shareholders meeting, which in several cases
vary from the anniversaries of the award. In general, RSUs
granted to persons other than directors will be settled in
shares of the Companys common stock with respect to 50% of
the underlying shares on the second anniversary of the award and
50% on the fourth anniversary of the award or 100% on the fifth
anniversary of the award, depending on the terms of the awards
granted. RSUs granted to certain executive officers on
March 31, 2010 will vest on the fifth anniversary of the
award.
RSU activity in the year ended October 31, 2010 is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
688
|
|
|
$
|
19.50
|
|
Granted
|
|
|
305
|
|
|
|
21.05
|
|
Issued (including 73 shares withheld for income taxes)
|
|
|
(221
|
)
|
|
|
19.34
|
|
Forfeited
|
|
|
(37
|
)
|
|
|
19.53
|
|
|
|
Outstanding at October 31, 2010
|
|
|
735
|
|
|
$
|
20.19
|
|
|
|
Vested at October 31, 2010
|
|
|
221
|
|
|
$
|
19.34
|
|
|
|
As of October 31, 2010, there was $8.6 million of
total unrecognized compensation cost (net of estimated
forfeitures) related to RSUs under the 2006 Equity Plan. The
cost is expected to be recognized on a straight-line basis over
a weighted-average vesting period of 1.99 years.
Performance
Shares
Performance shares consist of a contingent right to acquire
shares of the Companys common stock based on performance
targets adopted by the Compensation Committee. The number of
performance shares that will vest is based on pre-established
financial performance targets for one year, two year or three
year periods ending October 31, 2010, 2011 or 2012. Vesting
of 0% to 150% of the indicated shares will occur depending on
the achieved targets.
Performance share activity in the year ended October 31,
2010 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
407
|
|
|
$
|
19.34
|
|
Granted
|
|
|
268
|
|
|
|
19.49
|
|
Change in units based on performance
|
|
|
(235
|
)
|
|
|
19.35
|
|
Issued (including 8 shares withheld for income taxes)
|
|
|
(36
|
)
|
|
|
24.51
|
|
Forfeited
|
|
|
(23
|
)
|
|
|
18.83
|
|
|
|
Outstanding at October 31, 2010
|
|
|
381
|
|
|
$
|
18.98
|
|
|
|
Vested at October 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
As of October 31, 2010, there was $4.2 million of
total unrecognized compensation cost (net of estimated
forfeitures) related to performance shares. The cost is expected
to be recognized on a straight-line basis over a weighted
average vesting period of 1.87 years. These costs are based
on estimated achievement of performance criteria and estimated
costs will be reevaluated periodically.
Dividend
Equivalent Rights
RSUs are credited with dividend equivalent rights that are
converted to RSUs at the fair market value of the Companys
common stock on the dates the dividend payments are declared and
are subject to the same terms and conditions as the underlying
award. Performance shares granted prior to January 13, 2009
are credited with dividend equivalent rights that will be
converted to performance shares at the fair market value of the
Companys common stock on the dates the dividend payments
are declared and are subject to the same terms and conditions as
the underlying award. Performance shares granted on or after
January 13, 2009 are credited with dividend equivalent
rights that will be converted to performance shares at the fair
market value of the Companys common stock beginning after
the performance targets have been satisfied and are subject to
the same terms and conditions as the underlying award.
Time-Vested
Plan
Under the Time-Vested Plan, the options become exercisable at a
rate of 20% of the shares per year beginning one year after the
date of grant and expire ten years plus one month after the date
of grant.
62
The Time-Vested Plan activity in the year ended October 31,
2010 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
(in years)
|
|
|
(In thousands)
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
1,065
|
|
|
$
|
17.47
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(337
|
)
|
|
|
15.46
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(27
|
)
|
|
|
18.46
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010
|
|
|
701
|
|
|
$
|
18.40
|
|
|
|
3.54
|
|
|
$
|
2,909
|
|
|
|
Vested and exercisable at October 31, 2010
|
|
|
666
|
|
|
$
|
18.30
|
|
|
|
3.46
|
|
|
$
|
2,827
|
|
|
|
As of October 31, 2010, there was an immaterial amount of
total unrecognized compensation cost (net of estimated
forfeitures) related to unvested stock options under the
Time-Vested Plan. The cost is expected to be recognized on a
straight-line basis over a weighted-average vesting period of
less than one year.
1996 and 2002
Price-Vested Plans
The Company has two Price-Vested Plans: (1) the
1996 Price-Vested Plan and (2) the 2002 Price-Vested Plan.
The two plans are substantially similar as each plan has
pre-defined vesting prices that provide for accelerated vesting.
Under each form of option agreement, if at the end of four years
any of the stock price performance targets are not achieved,
then the remaining options vest at the end of eight years from
the date the options were granted. There have been no grants
under this plan since the year ended October 31, 2005,
therefore the remaining outstanding options under this plan will
vest on the eighth anniversary of the award. Options vesting
during the first year following grant do not become exercisable
until after the first anniversary of grant. The options expire
ten years after the date of grant.
Activity for the 1996 and 2002 Price-Vested Plans in the year
ended October 31, 2010 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
(in years)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
1,249
|
|
|
$
|
17.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(230
|
)
|
|
|
15.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(6
|
)
|
|
|
16.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010
|
|
|
1,013
|
|
|
$
|
17.43
|
|
|
|
3.15
|
|
|
$
|
5,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at October 31, 2010
|
|
|
977
|
|
|
$
|
17.51
|
|
|
|
3.18
|
|
|
$
|
4,922
|
|
|
|
As of October 31, 2010, there was an immaterial amount of
total unrecognized compensation cost (net of estimated
forfeitures) related to unvested stock options under the
Price-Vested Plans. The cost is expected to be recognized on a
straight-line basis over a weighted-average vesting period of
less than one year.
Executive Stock Option Plan (Age-Vested Plan)
Under the Age-Vested Plan, options are exercisable for 50% of
the shares when the option holders reach their
61st birthdays and the remaining 50% become exercisable on
their 64th birthdays. To the extent vested, the options may be
exercised at any time prior to one year after termination of
employment. Effective as of December 9, 2003, no further
grants may be made under the plan.
The Age-Vested Plan activity in the year ended October 31,
2010, is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
per Share
|
|
|
(in years)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2009
|
|
|
423
|
|
|
$
|
13.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(16
|
)
|
|
|
11.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5
|
)
|
|
|
15.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 31, 2010
|
|
|
402
|
|
|
$
|
13.75
|
|
|
|
43.90
|
|
|
$
|
3,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at October 31, 2010
|
|
|
72
|
|
|
$
|
11.49
|
|
|
|
45.93
|
|
|
$
|
791
|
|
|
|
As of October 31, 2010, there was $0.6 million of
total unrecognized compensation cost (net of estimated
forfeitures) related to unvested stock options under the
Age-Vested Plan, which is expected to be recognized on a
straight-line basis over a weighted-average vesting period of
8.50 years.
Employee Stock Purchase Plan
On March 9, 2004, the stockholders of the Company approved
the 2004 Employee Stock Purchase Plan under which an aggregate
of 2,000,000 shares may be issued. Effective May 1,
2006, the purchase price became 95% (from 85%) of the fair
market value of the Companys common stock on the last
trading day of the month. After that date, the plan is no longer
considered compensatory and the values of the awards are no
longer treated as share-based compensation expense. Employees
may designate up to 10% of their compensation for the purchase
of stock, subject to a $25,000 annual limit. Employees are
required to hold their shares for a minimum of six months from
the date of purchase.
The weighted average fair values of the purchase rights granted
in the years ended October 31, 2010,
63
2009 and 2008 under the new plan were $1.03, $0.86 and $1.05,
respectively. During the years ended October 31, 2010, 2009
and 2008, 190,340, 219,067 and 222,648 shares of stock were
issued under the plan at a weighted average price of $19.65,
$16.29 and $20.00, respectively. The aggregate purchases in the
years ended October 31, 2010, 2009 and 2008 were
$3.7 million, $3.6 million and $4.5 million,
respectively. On March 4, 2010, the shareholders authorized
an additional 1,000,000 shares to be issued under the 2004
Employee Stock Purchase Plan. At October 31, 2010,
1,102,834 shares remained unissued under the plan.
The income taxes provision for continuing operations consists of
the following components for each of the fiscal years ended
October 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14,394
|
|
|
$
|
5,542
|
|
|
$
|
(254
|
)
|
State
|
|
|
8,072
|
|
|
|
6,486
|
|
|
|
3,665
|
|
Foreign
|
|
|
83
|
|
|
|
951
|
|
|
|
18
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
17,341
|
|
|
|
19,722
|
|
|
|
26,022
|
|
State
|
|
|
319
|
|
|
|
(2,652
|
)
|
|
|
1,893
|
|
Foreign
|
|
|
(6
|
)
|
|
|
(879
|
)
|
|
|
241
|
|
|
|
|
|
$
|
40,203
|
|
|
$
|
29,170
|
|
|
$
|
31,585
|
|
|
|
The income tax provision for the year ended October 31,
2010 consists of both current and deferred income tax expense.
The income tax provision for the years ended October 31,
2009 and 2008 consists primarily of deferred income tax expense.
The deferred income tax expense for all three years primarily
relates to the use of net operating losses and other tax
attributes acquired from OneSource in the year ended
October 31, 2008, which resulted in a reduction of current
tax expense.
Income tax expense attributable to income from continuing
operations differs from the amounts computed by applying the
U.S. statutory rates to pre-tax income from continuing
operations as a result of the following for the years ended
October 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal tax benefit
|
|
|
6.5
|
%
|
|
|
6.5
|
%
|
|
|
5.1
|
%
|
Federal and state tax credits
|
|
|
(4.6
|
)%
|
|
|
(5.8
|
)%
|
|
|
(4.2
|
)%
|
Impact of change in state tax rate
|
|
|
(0.1
|
)%
|
|
|
(3.7
|
)%
|
|
|
(0.3
|
)%
|
Tax liabilities no longer required
|
|
|
(0.5
|
)%
|
|
|
(0.4
|
)%
|
|
|
(0.6
|
)%
|
Nondeductible expenses and other, net
|
|
|
2.3
|
%
|
|
|
2.9
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
38.6
|
%
|
|
|
34.5
|
%
|
|
|
37.5
|
%
|
|
|
The effective tax rate for the year ended October 31, 2010
is higher than the effective tax rate for the year ended
October 31, 2009 primarily due to a decrease in discrete
federal and state tax benefits recorded in the year ended
October 31, 2009. These tax benefits included the benefits
of state tax rate increases on the carrying value of the
Companys state deferred tax assets and employment based
credits.
The effective tax rate for the year ended October 31, 2009
is lower than the effective tax rate for the year ended
October 31, 2008 primarily due to nonrecurring favorable
federal and state tax benefits recorded in the year ended
October 31, 2009. These tax benefits include the benefits
of state tax rate increases on the carrying value of the
Companys state deferred tax assets and employment based
tax credits.
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities at October 31, 2010 and 2009 are presented
below:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Self-insurance claims (net of recoverables)
|
|
$
|
109,439
|
|
|
$
|
111,473
|
|
Deferred and other compensation
|
|
|
25,516
|
|
|
|
26,202
|
|
Accounts receivable allowances
|
|
|
4,245
|
|
|
|
4,891
|
|
Settlement liabilities
|
|
|
1,306
|
|
|
|
1,278
|
|
State taxes
|
|
|
712
|
|
|
|
447
|
|
Federal net operating loss carryforwards
|
|
|
19,961
|
|
|
|
25,412
|
|
State net operating loss carryforwards
|
|
|
9,184
|
|
|
|
8,858
|
|
Tax credits
|
|
|
6,602
|
|
|
|
5,815
|
|
Other
|
|
|
7,872
|
|
|
|
9,708
|
|
|
|
|
|
|
184,837
|
|
|
|
194,084
|
|
Valuation allowance
|
|
|
(6,290
|
)
|
|
|
(6,147
|
)
|
|
|
Total gross deferred tax assets
|
|
|
178,547
|
|
|
|
187,937
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(2,426
|
)
|
|
|
(4,224
|
)
|
Goodwill and other acquired intangibles
|
|
|
(78,860
|
)
|
|
|
(68,094
|
)
|
Deferred software development costs
|
|
|
|
|
|
|
(4
|
)
|
|
|
Total gross deferred tax liabilities
|
|
|
(81,286
|
)
|
|
|
(72,322
|
)
|
|
|
Net deferred tax assets
|
|
$
|
97,261
|
|
|
$
|
115,615
|
|
|
|
64
At October 31, 2010, the Companys net deferred tax
assets included a tax benefit from federal net operating loss
carryforwards of $57.0 million. The federal net operating
loss carryforwards will expire between 2014 and 2029. State net
operating loss carryforwards will expire between the years 2011
and 2030.
The Company periodically reviews its deferred tax assets for
recoverability. The valuation allowance represents the amount of
tax benefits related to state net operating loss carryforwards
that management believes are not likely to be realized. The
Company believes the gross deferred tax assets are more likely
than not to be realizable based on estimates of future taxable
income.
Changes to the deferred tax asset valuation allowance for the
years ended October 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Valuation allowance at the beginning of the year
|
|
$
|
6,147
|
|
|
$
|
6,800
|
|
Other, net
|
|
|
143
|
|
|
|
(653
|
)
|
|
|
Valuation allowance at the end of the year
|
|
$
|
6,290
|
|
|
$
|
6,147
|
|
|
|
In the year ended October 31, 2010, $0.1 million of
the increase in valuation allowance was charged to income tax
expense for deferred tax assets that were not expected to be
ultimately realized. In the year ended October 31, 2009,
the valuation allowance decreased (through a reduction of the
tax provision) by $0.1 million for state net operating
losses that became more-likely-than-not realizable based on
updated assessments of future taxable income. In the year ended
October 31, 2009, the valuation allowance also decreased by
a goodwill adjustment of $0.6 million as a result of the
interactions of tax positions associated with the acquisition of
OneSource.
At October 31, 2010, we had unrecognized tax benefits of
$101.7 million, all of which, if recognized in the future,
would impact the Companys effective tax rate. The Company
includes interest and penalties related to unrecognized tax
benefits in income tax expense. As of October 31, 2010, the
Company had accrued interest and penalties related to uncertain
tax positions of $0.7 million. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as
follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance at beginning of year
|
|
$
|
102,291
|
|
|
$
|
100,398
|
|
Additions for tax positions related to the current year
|
|
|
445
|
|
|
|
1,883
|
|
Additions for tax positions related to prior years
|
|
|
|
|
|
|
317
|
|
Reductions for tax positions related to prior years
|
|
|
(125
|
)
|
|
|
(37
|
)
|
Reductions for expiration of statue of limitations
|
|
|
(930
|
)
|
|
|
(270
|
)
|
|
|
Balance as of October 31
|
|
$
|
101,681
|
|
|
$
|
102,291
|
|
|
|
The Companys major tax jurisdiction is the United States.
ABM and OneSource U.S. federal income tax returns remain
open for examination for the periods ending October 31,
2006 through October 31, 2010 and March 31, 2000
through November 14, 2007, respectively. ABM is currently
being examined by the Internal Revenue Service for the tax years
2006-2008.
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
2006-2010
remain open and subject to examination by the appropriate tax
authorities. The Company is currently being examined by
Illinois, Maryland, Utah, New Jersey, Massachusetts, New York,
California and Puerto Rico. An estimate of the range of possible
changes in unrecognized tax benefits over the next
12 months cannot be made at this time.
65
The Company is organized into four reportable operating
segments, Janitorial, Parking, Security and Engineering, which
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
2,337,940
|
|
|
$
|
2,382,025
|
|
|
$
|
2,492,270
|
|
Parking
|
|
|
469,398
|
|
|
|
457,477
|
|
|
|
475,349
|
|
Security
|
|
|
336,249
|
|
|
|
334,610
|
|
|
|
333,525
|
|
Engineering
|
|
|
350,787
|
|
|
|
305,694
|
|
|
|
319,847
|
|
Corporate
|
|
|
1,373
|
|
|
|
2,017
|
|
|
|
2,599
|
|
|
|
|
|
|
3,495,747
|
|
|
|
3,481,823
|
|
|
|
3,623,590
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
|
140,983
|
|
|
|
139,858
|
|
|
|
118,538
|
|
Parking
|
|
|
22,738
|
|
|
|
20,285
|
|
|
|
19,438
|
|
Security
|
|
|
7,487
|
|
|
|
8,221
|
|
|
|
7,723
|
|
Engineering
|
|
|
21,955
|
|
|
|
19,658
|
|
|
|
19,129
|
|
Corporate
|
|
|
(84,324
|
)
|
|
|
(95,915
|
)
|
|
|
(65,319
|
)
|
|
|
Operating profit
|
|
|
108,839
|
|
|
|
92,107
|
|
|
|
99,509
|
|
Credit loss on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
OTTI recognized in earnings (other comprehensive income)
|
|
|
127
|
|
|
|
(2,129
|
)
|
|
|
|
|
Interest expense
|
|
|
4,639
|
|
|
|
5,881
|
|
|
|
15,193
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
104,073
|
|
|
$
|
84,660
|
|
|
$
|
84,316
|
|
|
|
The unallocated corporate expenses include a $1.2 million
and a $9.4 million increase in the years ended
October 31, 2010 and 2009, respectively, and a
$22.8 million reduction of insurance reserves in the year
ended October 31, 2008, related to claims incurred in prior
years. (See Note 8, Self-Insurance.) Had the
Company allocated these insurance charges among the segments,
the reported pre-tax operating profits of the segments, as a
whole, would have decreased by $1.2 million and
$9.4 million in the years ended October 31, 2010 and
2009, respectively, and increased $22.8 million in the year
ended October 31, 2008 with an equal and offsetting change
to unallocated corporate expenses and, therefore, no change to
consolidated pre-tax earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Total Identifiable Assets *
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
$
|
902,541
|
|
|
$
|
881,862
|
|
|
$
|
1,030,761
|
|
Parking
|
|
|
145,801
|
|
|
|
100,549
|
|
|
|
102,740
|
|
Security
|
|
|
112,194
|
|
|
|
107,667
|
|
|
|
107,203
|
|
Engineering
|
|
|
68,710
|
|
|
|
68,482
|
|
|
|
64,588
|
|
Corporate
|
|
|
313,772
|
|
|
|
347,239
|
|
|
|
224,939
|
|
|
|
|
|
|
1,543,018
|
|
|
|
1,505,799
|
|
|
|
1,530,231
|
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
|
18,356
|
|
|
|
18,009
|
|
|
|
18,455
|
|
Parking
|
|
|
2,797
|
|
|
|
2,746
|
|
|
|
2,641
|
|
Security
|
|
|
1,443
|
|
|
|
1,703
|
|
|
|
2,184
|
|
Engineering
|
|
|
549
|
|
|
|
350
|
|
|
|
103
|
|
Corporate
|
|
|
13,170
|
|
|
|
10,517
|
|
|
|
4,692
|
|
|
|
|
|
|
36,315
|
|
|
|
33,325
|
|
|
|
28,075
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Janitorial
|
|
|
12,503
|
|
|
|
6,633
|
|
|
|
10,266
|
|
Parking
|
|
|
1,265
|
|
|
|
1,815
|
|
|
|
2,058
|
|
Security
|
|
|
451
|
|
|
|
258
|
|
|
|
972
|
|
Engineering
|
|
|
79
|
|
|
|
749
|
|
|
|
114
|
|
Corporate
|
|
|
9,644
|
|
|
|
9,127
|
|
|
|
20,653
|
|
|
|
|
|
$
|
23,942
|
|
|
$
|
18,582
|
|
|
$
|
34,063
|
|
|
|
|
|
|
*
|
|
Excludes assets of discontinued
operations of $5.7 million, $15.4 million and
$45.7 million as of October 31, 2010, 2009 and 2008,
respectively.
|
|
|
15.
|
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 consideration received in connection
with such sale was $34.0 million in cash, which included
certain adjustments, payment to the Company of $0.6 million
pursuant to a transition services agreement and the assumption
of certain liabilities under certain contracts and leases
relating to the period after the closing. In connection with the
sale, the Company recorded a loss of approximately
$3.5 million, including income tax expense of
$1.0 million. 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)
income from discontinued operations, net of taxes.
66
The carrying amounts of the major classes of assets and
liabilities of the Lighting segment included in discontinued
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Trade accounts receivable, net
|
|
$
|
185
|
|
|
$
|
499
|
|
Notes receivable and other
|
|
|
602
|
|
|
|
1,937
|
|
Other receivables due from Sylvania (1)
|
|
|
3,473
|
|
|
|
8,351
|
|
|
|
Current assets of discontinued operations
|
|
|
4,260
|
|
|
|
10,787
|
|
|
|
Long-term notes receivable
|
|
|
374
|
|
|
|
976
|
|
Other receivables due from Sylvania (1)
|
|
|
1,018
|
|
|
|
3,591
|
|
|
|
Non-current assets of discontinued operations
|
|
|
1,392
|
|
|
|
4,567
|
|
|
|
Trade accounts payable
|
|
|
9
|
|
|
|
840
|
|
Accrued liabilities
|
|
|
|
|
|
|
53
|
|
Due to Sylvania, net (2)
|
|
|
62
|
|
|
|
172
|
|
|
|
Current liabilities of discontinued operations
|
|
$
|
71
|
|
|
$
|
1,065
|
|
|
|
|
|
|
(1)
|
|
In connection with the sale of the
Lighting segment, Sylvania acquired certain contracts containing
deferred charges. Payments received by Sylvania from clients
with respect to the deferred charges for these contracts are
paid to the Company.
|
|
(2)
|
|
Represents net amounts collected on
Sylvanias behalf pursuant to a transition services
agreement, which was entered into in connection with the sale of
the Lighting segment.
|
The summarized operating results of the Companys
discontinued Lighting segment for the years ended
October 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues
|
|
$
|
71
|
|
|
$
|
412
|
|
|
$
|
114,904
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
Income (loss) before income taxes
|
|
|
409
|
|
|
|
(1,725
|
)
|
|
|
(4,052
|
)
|
Provision (benefit) for income taxes
|
|
|
158
|
|
|
|
(528
|
)
|
|
|
(276
|
)
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
$
|
251
|
|
|
$
|
(1,197
|
)
|
|
$
|
(3,776
|
)
|
|
|
The income from discontinued operations, net of taxes, of
$0.3 million for the year ended October 31, 2010
primarily relates to the recovery of previously written-off
accounts receivables. The loss from discontinued operations, net
of taxes, of $1.2 million and $3.8 million for the
years ended October 31, 2009 and 2008, respectively,
primarily relates to severance related costs and selling,
general and administrative transition costs.
During the year ended October 31, 2008, in response to
objective evidence about the implied value of goodwill relating
to the Companys Lighting segment, the Company performed an
assessment of goodwill for impairment. The goodwill in the
Companys Lighting segment was determined to be impaired
and a non-cash, partially tax-deductible goodwill impairment
charge of $4.5 million was recorded on April 30, 2008,
which is included in discontinued operations in the accompanying
consolidated statements of income for the year ended
October 31, 2008.
Acquisition of
Linc
On December 1, 2010, the Company acquired Linc pursuant to
an Agreement and Plan of Merger, dated as of December 1,
2010 (the Merger Agreement), by and among ABM, Linc,
GI Manager LP, as the Members Representative, and Lightning
Services, LLC, a wholly-owned subsidiary of ABM (Merger
Sub). Pursuant to the Merger Agreement, Merger Sub merged
with and into Linc, and Linc continued as the surviving
corporation and as a wholly owned subsidiary of ABM. The
aggregate purchase price for all of the outstanding limited
liability company interests of Linc was approximately
$301.0 million, subject to certain adjustments as set forth
in the Merger Agreement. In connection with the Linc
acquisition, the Company acquired $98.4 million of
outstanding surety bonds and $11.9 million of standby
letters of credit as of the acquisition date. Linc provides
end-to-end
integrated facilities management services that improve operating
efficiencies, reduce energy consumption and lower overall
operational costs for facilities in the governmental, commercial
and residential markets throughout the United States and select
international markets. The operations of Linc will be included
in the Engineering segment as of the acquisition date.
Line of Credit
Facility
On November 30, 2010, the Company terminated the old
Facility and replaced it with a new $650 million five year
syndicated line of credit (the new Facility). The
new Facility is scheduled to expire on November 30, 2015,
with the option to increase the size of the new Facility to
$850 million at any time prior to the expiration (subject
to receipt of commitments for the increased amount from existing
and new lenders). Borrowings under the new Facility were used in
part to acquire Linc on December 1, 2010, as well as pay
down the outstanding balances under the old Facility. The new
Facility is available for working capital, the issuance of
standby letters of credit, the financing of capital expenditures
and other general corporate purposes, including acquisitions.
Under the new Facility, no compensating balances are required
and the interest rate is determined at the time of borrowing
based on the London Interbank Offered Rate (LIBOR)
plus a spread of 1.5% to 2.5% or, at the Companys
election, at the higher of: the
67
federal funds rate plus 0.5%; the Bank of America prime rate
(Alternate Base Rate) plus a spread of 0.5% to 1.5%;
and the Eurodollar rate plus 1.0%. The new Facility calls for a
non-use fee payable quarterly, in arrears, of 0.25% to 0.50% of
the average, daily, unused portion of the new Facility. For
purposes of this calculation, irrevocable standby letters of
credit issued primarily in conjunction with the Companys
self-insurance program and cash borrowings are included as usage
of the new Facility. The spreads for LIBOR and the Alternate
Base Rate and the non-use fee percentage are based on the
Companys leverage ratio.
The new Facility includes covenants limiting liens,
dispositions, fundamental changes, investments, indebtedness,
and certain transactions and payments. In addition, the new
Facility also requires that the Company maintain three financial
covenants: (1) a fixed charge coverage ratio greater than
or equal to 1.50 to 1.0 at any time; (2) a leverage ratio
of less than or equal to 3.25 to 1.0 at each fiscal quarter-end;
and (3) a consolidated net worth of greater than or equal
to the sum of (i) $570.0 million, (ii) an amount
equal to 50% of the consolidated net income earned in each full
fiscal quarter ending after November 30, 2010 (with no
deduction for a net loss in any such fiscal quarter), and
(iii) an amount equal to 100% of the aggregate increases in
stockholders equity of the Company after November 30,
2010 by reason of the issuance and sale of capital stock or
other equity interests of the Company or any subsidiary,
including upon any conversion of debt securities of the Company
into such capital stock or other equity interests, but excluding
by reason of the issuance and sale of capital stock pursuant to
the Companys employee stock purchase plans, employee stock
option plans and similar programs.
If an event of default occurs under the new Facility, including
certain cross-defaults, insolvency, change in control, and
violation of specific covenants, among others, the lenders can
terminate or suspend the Companys access to the new
Facility, declare all amounts outstanding under the new
Facility, including all accrued interest and unpaid fees, to be
immediately due and payable,
and/or
require that the Company cash collateralize the outstanding
letter of credit obligations.
68
|
|
17.
|
QUARTERLY
INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter
|
|
|
|
|
(In thousands, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Year
|
|
|
|
|
Year ended October 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
869,884
|
|
|
$
|
855,461
|
|
|
$
|
869,029
|
|
|
$
|
901,373
|
|
|
$
|
3,495,747
|
|
|
|
|
|
|
|
Gross profit
|
|
|
87,783
|
|
|
|
83,487
|
|
|
|
92,805
|
|
|
|
97,654
|
|
|
|
361,729
|
|
|
|
|
|
|
|
Credit losses on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
OTTI recognized in earnings
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
101
|
|
|
|
127
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
12,836
|
|
|
|
8,623
|
|
|
|
20,973
|
|
|
|
21,438
|
|
|
|
63,870
|
|
(Loss) income from discontinued operations
|
|
|
(61
|
)
|
|
|
(46
|
)
|
|
|
(10
|
)
|
|
|
368
|
|
|
|
251
|
|
|
|
Net income
|
|
|
12,775
|
|
|
|
8,577
|
|
|
|
20,963
|
|
|
|
21,806
|
|
|
|
64,121
|
|
|
|
|
|
|
|
Net income per common share Basic(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.25
|
|
|
|
0.16
|
|
|
|
0.40
|
|
|
|
0.42
|
|
|
|
1.23
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share Basic
|
|
|
0.25
|
|
|
|
0.16
|
|
|
|
0.40
|
|
|
|
0.42
|
|
|
|
1.23
|
|
|
|
|
|
|
|
Net income per common share Diluted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.24
|
|
|
|
0.16
|
|
|
|
0.40
|
|
|
|
0.41
|
|
|
|
1.21
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share Diluted
|
|
$
|
0.24
|
|
|
$
|
0.16
|
|
|
$
|
0.40
|
|
|
$
|
0.41
|
|
|
$
|
1.21
|
|
|
|
Year ended October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
887,472
|
|
|
$
|
855,711
|
|
|
$
|
870,635
|
|
|
$
|
868,005
|
|
|
$
|
3,481,823
|
|
|
|
|
|
|
|
Gross profit
|
|
|
100,204
|
|
|
|
89,563
|
|
|
|
88,186
|
|
|
|
89,171
|
|
|
|
367,124
|
|
|
|
|
|
|
|
Credit loss on auction rate security:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
other-than-temporary
impairment losses (OTTI)
|
|
|
|
|
|
|
|
|
|
|
3,575
|
|
|
|
120
|
|
|
|
3,695
|
|
OTTI recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
(2,009
|
)
|
|
|
(120
|
)
|
|
|
(2,129
|
)
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
14,755
|
|
|
|
13,049
|
|
|
|
12,400
|
|
|
|
15,286
|
|
|
|
55,490
|
|
Loss from discontinued operations
|
|
|
(538
|
)
|
|
|
(272
|
)
|
|
|
(124
|
)
|
|
|
(263
|
)
|
|
|
(1,197
|
)
|
|
|
Net income
|
|
|
14,217
|
|
|
|
12,777
|
|
|
|
12,276
|
|
|
|
15,023
|
|
|
|
54,293
|
|
|
|
|
|
|
|
Net income per common share Basic(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.29
|
|
|
|
0.25
|
|
|
|
0.24
|
|
|
|
0.30
|
|
|
|
1.08
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
Net income per common share Basic
|
|
|
0.28
|
|
|
|
0.25
|
|
|
|
0.24
|
|
|
|
0.29
|
|
|
|
1.06
|
|
|
|
|
|
|
|
Net income per common share Diluted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
0.29
|
|
|
|
0.25
|
|
|
|
0.24
|
|
|
|
0.29
|
|
|
|
1.07
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
Net income per common share Diluted
|
|
$
|
0.28
|
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
$
|
0.29
|
|
|
$
|
1.05
|
|
|
|
|
|
|
(1)
|
|
The sum of the quarterly per share
amounts may not equal per share amounts reported for the
year-to-date
periods, due to the effects of rounding for each period.
|
69
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
a. Disclosure Controls and Procedures. As
required by paragraph (b) of
Rules 13a-15
or 15d-15
under the Exchange Act, the Companys principal executive
officer and principal financial officer evaluated the
Companys disclosure controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act) as of the end of the period covered by this
Annual Report on
Form 10-K.
Based on this evaluation, these officers concluded that as of
the end of the period covered by this Annual Report on
Form 10-K,
these disclosure controls and procedures were effective to
ensure that the information required to be disclosed by the
Company in reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and
Exchange Commission and include controls and procedures designed
to ensure that such information is accumulated and communicated
to the Companys management, including the Companys
principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure. Because of
the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control
issues, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur
because of simple error or mistake.
b. Managements Report on Internal Control Over
Financial Reporting. The management of the
Company is responsible for establishing and maintaining
effective internal control over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) for the Company. The Companys internal
control over financial reporting is designed to provide
reasonable assurance, not absolute assurance, regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles in the United States of
America. Internal control over financial reporting includes
those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles in the United States of America,
and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
accompanying consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions and that the degree
of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
October 31, 2010, based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on that
assessment and those criteria, the Companys management
concluded that the Companys internal control over
financial reporting was effective at a reasonable assurance
level as of October 31, 2010. The Companys
independent registered public accounting firm has issued an
attestation report on the Companys internal control over
financial reporting, which is included in Item 8 of this
Annual Report on
Form 10-K
under the caption entitled Report of Independent
Registered Public Accounting Firm.
c. Changes in Internal Control Over Financial
Reporting. There were no changes in the
Companys internal control over financial reporting during
the quarter ended October 31, 2010 that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
d. Certificates. Certificates with
respect to disclosure controls and procedures and internal
control over financial reporting under
Rules 13a-14(a)
or 15d-14(a)
of the Exchange Act are attached as exhibits to this Annual
Report on
Form 10-K.
70
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this item regarding the
Companys executive officers is included in Part I
under Executive Officers of the Registrant.
Information required by this Item 10 is included under the
headings Proposal Election of Directors,
Corporate Governance, Corporate
Governance Audit Committee Matters and
Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys Definitive Proxy
Statement for the Companys Annual Meeting of Shareholders
scheduled to be held on March 8, 2011 (2011 Proxy
Statement). All of this information is incorporated by
reference into this Annual Report. The 2011 Proxy Statement will
be filed with the Commission not later than 120 days after
the conclusion of the Companys fiscal year ended
October 31, 2010.
On March 3, 2010, the Company filed its Annual CEO
Certification as required by Section 303A.12 of the NYSE
Listed Company Manual.
Code of Business Conduct. The Company has
adopted and posted on its website (www.abm.com) the ABM
Code of Business Conduct that applies to all directors, officers
and employees of the Company, including the Companys
Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer. If any amendments are made to the
Code of Business Conduct or if any waiver, including any
implicit waiver, from a provision of the Code of Business
Conduct is granted to the Companys Principal Executive
Officer, Principal Financial Officer or Principal Accounting
Officer, the Company will disclose the nature of such amendment
or waiver on its website at the address specified above.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item with regard to officer and
director compensation is incorporated by reference from the
information set forth under the caption Officers and
Directors Compensation contained in the 2011 Proxy
Statement. The information required by this item with respect to
compensation committee interlocks and insider participation is
incorporated by reference from the information so titled under
the caption Corporate Governance contained in the
2011 Proxy Statement.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item regarding security
ownership of certain beneficial owners and management is
incorporated by reference from the information set forth under
the caption Security Ownership of Management and Certain
Beneficial Owners contained in the 2011 Proxy Statement.
71
Equity
Compensation Plan Information
The following table provides information regarding the
Companys equity compensation plans as of October 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for
|
|
|
|
|
|
|
|
|
|
Future Issuance
|
|
|
|
Number of Securities
|
|
|
|
|
|
Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected
|
|
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
in Column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
Equity compensation plans approved by
security holders
|
|
|
3,315,348
|
(1)
|
|
$
|
18.30
|
|
|
|
2,823,526
|
(2)
|
|
|
Equity compensation plans not approved by
security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,315,348
|
|
|
$
|
18.30
|
|
|
|
2,823,526
|
|
|
|
|
|
|
(1)
|
|
Does not include outstanding
restricted stock units or performance shares.
|
|
(2)
|
|
Includes 1,102,834 shares
available for issuance under the Employee Stock Purchase Plan.
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this item with respect to certain
relationships and related transactions is incorporated by
reference from the information so titled under the caption
Officers and Directors Compensation
contained in the 2011 Proxy Statement. The information required
by this item with respect to director independence is
incorporated by reference from the information set forth under
the caption Corporate Governance contained in the
2011 Proxy Statement.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference from the information set forth under the caption
Audit Related Matters contained in the 2011 Proxy
Statement.
72
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as part of this
Form 10-K:
1. Consolidated Financial Statements of ABM Industries
Incorporated and Subsidiaries:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets October 31, 2010
and 2009
Consolidated Statements of Income Years ended
October 31, 2010, 2009 and 2008
Consolidated Statements of Stockholders Equity and
Comprehensive Income Years ended October 31,
2010, 2009 and 2008
Consolidated Statements of Cash Flows Years ended
October 31, 2010, 2009 and 2008
Notes to the Consolidated Financial Statements.
2. Consolidated Financial Statement Schedule of ABM
Industries Incorporated and Subsidiaries:
Schedule II Consolidated Valuation
Accounts Years ended October 31, 2010, 2009 and
2008.
All other schedules are omitted because they are not applicable
or because the required information is included in the
accompanying consolidated financial statements or the notes
thereto.
(b) Exhibits:
See Exhibit Index.
(c) Additional Financial Statements:
The individual financial statements of the registrants
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.
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ABM Industries Incorporated
|
|
By: |
/s/ Henrik
C. Slipsager
|
Henrik
C. Slipsager
President & Chief Executive Officer and Director
December 23, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Henrik
C. Slipsager
Henrik
C. Slipsager
President & Chief Executive Officer and Director
(Principal Executive Officer)
December 23, 2010
James S. Lusk
Executive Vice President &
Chief Financial Officer
(Principal Financial Officer)
December 23, 2010
Dean A. Chin
Senior Vice President and Controller
(Principal Accounting Officer)
December 23, 2010
/s/ Maryellen
C. Herringer
Maryellen C. Herringer
Chairman of the Board and Director
December 23, 2010
Dan T. Bane, Director
December 23, 2010
Linda Chavez, Director
December 23, 2010
J. Philip Ferguson, Director
December 23, 2010
Anthony G. Fernandes, Director
December 23, 2010
Luke S. Helms, Director
December 23, 2010
/s/ Henry
L. Kotkins, Jr.
Henry L. Kotkins, Jr., Director
December 23, 2010
William W. Steele, Director
December 23, 2010
74
Schedule Of Valuation And Qualifying Accounts Disclosure
Schedule II
CONSOLIDATED
VALUATION ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Charges to
|
|
|
Write-offs
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
|
|
|
Costs and
|
|
|
Net of
|
|
|
End of
|
|
(In thousands)
|
|
of Year
|
|
|
Acquisitions
|
|
|
Expenses
|
|
|
Recoveries
|
|
|
Year
|
|
|
|
|
Accounts receivable allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
10,772
|
|
|
|
281
|
|
|
|
14,239
|
|
|
|
(14,620
|
)
|
|
$
|
10,672
|
|
2009
|
|
|
12,466
|
|
|
|
|
|
|
|
23,072
|
|
|
|
(24,766
|
)
|
|
|
10,772
|
|
2008
|
|
|
6,379
|
|
|
|
2,353
|
|
|
|
21,851
|
|
|
|
(18,117
|
)
|
|
|
12,466
|
|
|
|
The 2009 presentation of charges to costs and expenses and
write-offs net of recoveries have been reclassified to conform
to the comparable periods presented. This adjustment had no
impact on the Companys consolidated financial statements
for any periods presented.
75
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
2.1
|
|
Asset Purchase and Sale Agreement, dated as of August 29,
2008 by and among ABM Industries Incorporated, a Delaware
corporation, Amtech Lighting Services, Amtech Lighting Services
of the Midwest and Amtech Lighting and Electrical Services, each
of which are California corporations, and Sylvania Lighting
Services Corp., a Delaware corporation
|
|
8-K
|
|
001-08929
|
|
2.1
|
|
September 5, 2008
|
2.2
|
|
Agreement and Plan of Merger, dated December 1, 2010, by
and among ABM Industries Incorporated, Lightning Services, LLC,
The Linc Group, LLC and GI Manager L.P.
|
|
8-K
|
|
001-08929
|
|
2.1
|
|
December 2, 2010
|
3.1
|
|
Restated Certificate of Incorporation of ABM Industries
Incorporated, dated November 25, 2003
|
|
10-K
|
|
001-08929
|
|
3.1
|
|
January 14, 2004
|
3.2
|
|
Bylaws, as amended December 13, 2010
|
|
8-K
|
|
001-08929
|
|
3.2
|
|
December 16, 2010
|
10.1
|
|
Credit Agreement, dated as of November 30, 2010, among ABM
Industries Incorporated, various financial institutions and Bank
of America, N.A., as Administrative Agent
|
|
8-K
|
|
001-08929
|
|
10.1
|
|
December 2, 2010
|
10.2
|
|
Amended and Restated Master Services Agreement, dated
February 24, 2009, by and between ABM Industries
Incorporated and International Business Machines Corporation
|
|
8-K/A
|
|
001-08929
|
|
10.1
|
|
February 26, 2009
|
10.3
|
|
Transition Agreement, dated February 24, 2009, by and
between ABM Industries Incorporated and International Business
Machines Corporation
|
|
8-K/A
|
|
001-08929
|
|
10.2
|
|
February 26, 2009
|
10.4*
|
|
ABM Executive Retiree Healthcare and Dental Plan
|
|
10-K
|
|
001-08929
|
|
10.17
|
|
January 14, 2005
|
10.5*
|
|
Director Retirement Plan Distribution Election Form, as revised
June 16, 2006
|
|
10-Q
|
|
001-08929
|
|
10.1
|
|
September 8, 2006
|
10.6*
|
|
Arrangements With Non-Employee Directors
|
|
10-K
|
|
001-08929
|
|
10.6
|
|
December 22, 2009
|
10.7*
|
|
Deferred Compensation Plan for Non-Employee Directors, as
amended and restated December 13, 2010
|
|
|
|
|
|
|
|
|
10.8*
|
|
Form of Director Indemnification Agreement
|
|
10-Q
|
|
001-08929
|
|
10.5
|
|
March 6, 2009
|
10.9*
|
|
ABM Executive Officer Incentive Plan, as amended and restated
June 3, 2008
|
|
10-Q
|
|
001-08929
|
|
10.6
|
|
September 8, 2008
|
10.10*
|
|
2006 Equity Incentive Plan, as amended and restated
January 11, 2010
|
|
10-Q
|
|
001-08929
|
|
10.1
|
|
March 4, 2010
|
10.11*
|
|
Statement of Terms and Conditions Applicable to Options,
Restricted Stock and Restricted Stock Units and Performance
Shares Granted to Employees Pursuant to the 2006 Equity
Incentive Plan, as amended and restated March 31, 2010
|
|
8-K
|
|
001-08929
|
|
10.1
|
|
April 2, 2010
|
10.12*
|
|
Statement of Terms and Conditions Applicable to Options,
Restricted Stock and Restricted Stock Units Granted to Directors
Pursuant to the 2006 Equity Incentive Plan, as amended and
restated June 3, 2008
|
|
10-Q
|
|
001-08929
|
|
10.3
|
|
September 8, 2008
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
10.13*
|
|
Statement of Terms and Conditions Applicable to Restricted Stock
Units Granted Pursuant to the 2006 Equity Incentive Plan to
Directors Who Elect to Relinquish Their Benefits Effective
November 1, 2006, as amended and restated September 8,
2010
|
|
|
|
|
|
|
|
|
10.14*
|
|
Form of Non-Qualified Stock Option Agreement 2006
Equity Plan
|
|
10-Q
|
|
001-08929
|
|
10.4
|
|
June 4, 2010
|
10.15*
|
|
Form of Restricted Stock Agreement 2006 Equity Plan
|
|
10-K
|
|
001-08929
|
|
10.31
|
|
December 22, 2006
|
10.16*
|
|
Form of Restricted Stock Unit Agreement 2006 Equity
Plan
|
|
10-Q
|
|
001-08929
|
|
10.5
|
|
June 4, 2010
|
10.17*
|
|
Form of Performance Share Agreement 2006 Equity Plan
|
|
10-K
|
|
001-08929
|
|
10.33
|
|
December 22, 2006
|
10.18*
|
|
Executive Stock Option Plan (aka Age-Vested Career Stock Option
Plan), as amended and restated as of December 9, 2008
|
|
8-K
|
|
001-08929
|
|
10.1
|
|
December 15, 2008
|
10.19*
|
|
Time-Vested Incentive Stock Option Plan, as amended and restated
as of September 4, 2007
|
|
10-Q
|
|
001-08929
|
|
10.2
|
|
September 10, 2007
|
10.20*
|
|
1996 Price-Vested Performance Stock Option Plan, as amended and
restated as of September 4, 2007
|
|
10-Q
|
|
001-08929
|
|
10.3
|
|
September 10, 2007
|
10.21*
|
|
2002 Price-Vested Performance Stock Option Plan, as amended and
restated as of September 4, 2007
|
|
10-Q
|
|
001-08929
|
|
10.4
|
|
September 10, 2007
|
10.22*
|
|
Deferred Compensation Plan for Executives, amended and restated,
October 25, 2010
|
|
|
|
|
|
|
|
|
10.23*
|
|
Form of Restricted Stock Unit Agreement dated March 31,
2010 for Awards to Certain Executive Officers
|
|
8-K
|
|
001-08929
|
|
10.2
|
|
April 2, 2010
|
10.24*
|
|
Form of Stock Option Agreement dated March 31, 2010 for
Awards to Certain Executive Officers
|
|
8-K
|
|
001-08929
|
|
10.3
|
|
April 2, 2010
|
10.25*
|
|
Supplemental Executive Retirement Plan, as amended and restated
June 3, 2008
|
|
10-Q
|
|
001-08929
|
|
10.4
|
|
September 8, 2008
|
10.26*
|
|
Service Award Benefit Plan, as amended and restated June 3,
2008
|
|
10-Q
|
|
001-08929
|
|
10.5
|
|
September 8, 2008
|
10.27*
|
|
Executive Severance Pay Policy, as amended and restated
June 3, 2008
|
|
10-Q
|
|
001-08929
|
|
10.7
|
|
September 8, 2008
|
10.28*
|
|
Amended and Restated Employment Agreement dated
December 16, 2009 by and between ABM Industries
Incorporated and Henrik C. Slipsager
|
|
10-Q
|
|
001-08929
|
|
10.3
|
|
March 4, 2010
|
10.29*
|
|
Form of Executive Employment Agreement (with term) with James S.
Lusk, James P. McClure, Sarah H. McConnell and Steven M.
Zaccagnini
|
|
8-K
|
|
001-08929
|
|
10.1
|
|
October 27, 2010
|
10.30*
|
|
Form of Executive Employment Agreement (with term)
|
|
|
|
|
|
|
|
|
10.31*
|
|
Form of Executive Employment Agreement (without term)
|
|
|
|
|
|
|
|
|
10.32*
|
|
Form of Amended and Restated Executive Change in Control
Agreement with Henrik C. Slipsager, James S. Lusk, James P.
McClure and Steven M. Zaccagnini
|
|
8-K
|
|
001-08929
|
|
10.1
|
|
December 31, 2008
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
No.
|
|
Exhibit Description
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
10.33*
|
|
Annex A for Change in Control Agreement for Henrik C.
Slipsager
|
|
8-K/A
|
|
001-08929
|
|
10.1
|
|
January 5, 2009
|
10.34*
|
|
Executive Change in Control Agreement with Sarah H. McConnell
|
|
10-K
|
|
001-08929
|
|
10.32
|
|
December 22, 2009
|
21.1
|
|
Subsidiaries of the Registrant
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Securities
Exchange Act of 1934
Rule 13a-14(a)
or 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Securities
Exchange Act of 1934
Rule 13a-14(a)
or 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
32.1
|
|
Certifications pursuant to Securities Exchange Act of 1934
Rule 13a-14(b)
or 15d-14(b) and 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates management contract or compensatory plan, contract or
arrangement |
|
|
|
Indicates filed herewith |
|
|
|
Indicates furnished herewith |
78