Back to GetFilings.com

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the Fiscal Year Ended October 31, 2002

Commission File Number 1-8929

160 Pacific Avenue, Suite 222, San Francisco, California 94111

Registrant’s telephone number, including area code: 415/733-4000

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X  No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.       

As of November 30, 2002, nonaffiliates of the registrant beneficially owned 39,011,613 shares of the registrant’s common stock with an aggregate market value of $578,932,337.

As of November 30, 2002, there were 49,070,289 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be used by the Company in connection with its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

ABM INDUSTRIES INCORPORATED

PART I

ITEM 1. BUSINESS

       ABM Industries Incorporated (“ABM”) is the largest facility services contractor listed on the New York Stock Exchange. With annual revenues exceeding $2.1 billion and more than 62,000 employees, ABM and its subsidiaries (the “Company”) provide janitorial, parking, engineering, security, lighting, elevator and air conditioning services to thousands of commercial, industrial, institutional and retail facilities in hundreds of cities across North America.

      ABM was reincorporated in Delaware on March 19, 1985, as the successor to a business founded in California in 1909. The corporate headquarters of the Company is located at 160 Pacific Avenue, Suite 222, San Francisco, California 94111, and the Company’s telephone number at that location is 415/733-4000.

Industry Information

      The Company’s operations are grouped into eight divisions (each comprised of one or more subsidiaries of the Company), as they existed at October 31, 2002. Referred to as the “ABM Family of Services”, they are:

         • ABM Janitorial Services

     Additional information relating to the Company’s industry segments appears in Note 13 of Notes to Consolidated Financial Statements contained in Item 8, “Financial Statements and Supplementary Data.” The business activities of the Company’s industry segments, as they existed at October 31, 2002, are more fully described below.

	- ABM Janitorial Services (also known as “American Building Maintenance” and “ABM Lakeside Building Maintenance”) provides a wide range of basic janitorial services for a variety of facilities, including office buildings, industrial plants, banks, department stores, theaters, warehouses, educational and health institutions, and airport terminals. Services provided include floor cleaning and finishing, wall and window washing, furniture polishing, rug cleaning and dusting, as well as other building cleaning services. ABM Janitorial Services maintains 106 offices in 35 states, the District of Columbia and one Canadian province, and operates under thousands of individually negotiated building maintenance contracts, nearly all of which are obtained by competitive bidding. Generally, profit margins on maintenance contracts tend to be inversely proportional to the size of the contract. The Division’s maintenance contracts are either fixed-price agreements or they contain clauses under which the customer agrees to reimburse the full amount of wages, payroll taxes, insurance charges and other expenses plus a profit percentage. The majority of ABM Janitorial Services contracts are for one-year periods, but are subject to termination by either party after a 30 to 90 day written notice and contain automatic renewal clauses.
	The operations of Lakeside Building Maintenance, Inc. and an affiliated company (collectively, Lakeside) were acquired by the Company on July 12, 2002. Chicago-based Lakeside operated as the largest privately-owned janitorial contractor in the Midwest, with operations in Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Louisville, Milwaukee, Nashville and St. Louis.
	- Ampco System Parking (also known as “Ampco System Airport Parking” and “Ampco Express Airport Parking”) operates approximately 1,700 parking lots and garages, including the following airports: Austin, Texas; Denver, Colorado; Detroit, Michigan; Honolulu, Hawaii; Orlando, Florida; and San Francisco, California, to name a few. In conjunction with its on-airport parking services, this Division also operates off-airport parking facilities in Philadelphia, Pennsylvania; Houston and Dallas, Texas; Los Angeles and San Diego, California, and parking shuttle bus services at thirteen locations. Approximately 40% of the lots and garages are leased and 60% are operated through management contracts for third parties. The lease terms generally range from 3 to 20 years and usually contain provisions for renewal options. Leases which expire may continue on a month-to-month basis or may be replaced by similar leases. Many leases contain provisions for contingent rentals based on revenues. Management contracts

3

	contain clauses under which the customer agrees to reimburse the full amount of wages, payroll taxes, insurance charges and other expenses plus a profit percentage. Ampco System Parking maintains 30 offices and operates in 26 states.
	- ABM Engineering Services provides facilities with on-site engineers to operate, maintain and repair electrical, energy management, mechanical and plumbing systems utilizing in part computerized maintenance management systems (“CMMS”). These services are primarily designed for high-rise office buildings, but customers also include schools, computer centers, shopping malls and universities. ABM Engineering Services operates in 19 states through ten regional offices, three of which are in California and one each in Arizona, Colorado, Florida, Illinois, Pennsylvania, New York and Texas. The Division has maintained ISO 9002 Certification for the past four years, the only national engineering services provider of on-site operating engineers to earn this exclusive designation. ISO is a quality standard comprised of a rigorous set of guidelines and good business practices against which companies are evaluated through a comprehensive independent audit process.
	- American Commercial Security Services (also known as “ACSS” and “ABM Security Services”) provides security guards; electronic monitoring of fire, life, safety and access control devices; and security consulting services’ to a wide range of businesses. This Division maintains 24 offices and operates in the major metropolitan areas of Phoenix, Arizona; Los Angeles, Sacramento, San Diego, San Francisco and Santa Clara, California; Chicago, Illinois; New Orleans, Louisiana; Minneapolis, Minnesota; Portland, Oregon; Houston, Dallas, Fort Worth, Austin and San Antonio, Texas; Seattle, Washington; New York City, New York; Philadelphia and Pittsburgh, Pennsylvania; and Washington, D.C. Much like ABM Janitorial Services, the majority of this Division’s contracts are for one-year periods, but are subject to termination by either party after a 30 to 90 day written notice and contain automatic renewal clauses.
	- Amtech Lighting Services provides relamping, fixture cleaning, and periodic lighting maintenance service to a variety of commercial, industrial and retail facilities. Amtech Lighting Services also repairs and maintains electrical outdoor signage, and provides electrical service and repairs. This Division operates 28 offices, eight of which are located in California, four in Texas, two in North Carolina; and one office in each of the following states: Alabama, Arizona, Florida, Georgia, Illinois, Louisiana, Minnesota, Nevada, New Jersey, New York, Ohio, Oklahoma, Oregon and Washington.
	- Amtech Elevator Services maintains, repairs and modernizes elevators and escalators in major metropolitan areas of California; Houston, Texas; Detroit, Michigan; Las Vegas, Nevada; Atlanta, Georgia; Philadelphia, Pennsylvania; Phoenix, Arizona; Denver, Colorado; Chicago, Illinois; and Washington, D.C. Amtech Elevator Services maintains 15 offices and several parts warehouses, and operates a fleet of radio-equipped service vehicles.
	- CommAir Mechanical Services (also known as “CommAir Preferred Mechanical Services”) installs, maintains and repairs heating, ventilation and air conditioning (“HVAC”) equipment, performs chemical water treatment and provides energy conservation services for commercial, industrial and institutional facilities. CommAir Mechanical Services maintains nine offices, eight of which are located in California, and one in Phoenix, Arizona.
	- ABM Service Network (also known as “ABM Facility Services”) provides customers with streamlined, centralized control and coordination of multiple facility service needs. This process is consistent with the greater competitive demands on corporate organizations to become more efficient in the business market today. By leveraging the core competencies of the Company’s other divisions, this Division attempts to reduce overhead (such as redundant personnel) for its customers by providing multiple services under a single contract, with one contact and one invoice. Its National Service Center provides centralized dispatching, emergency services, accounting and related reports to financial institutions, high-tech companies and other customers regardless of industry or size. ABM Service Network is headquartered in San Francisco, where it also maintains the National Service Center.

4

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 which are material to the Company’s operations.

Competition

      The Company believes that each aspect of its business is highly competitive, and that such competition is based primarily on price and quality of service. Nearly all services provided by the Company are under contracts originally obtained through competitive bidding. The majority of the Company’s competitors are regional and local companies located in major cities throughout the United States and Canada that operate in a limited geographic area. The operating divisions of a few large, diversified facility service and manufacturing companies compete with the Company on a national basis.

Sales and Marketing

      The Company’s sales and marketing efforts are conducted by its corporate, division, region, branch and district offices. Sales, marketing, management and operations personnel in each of these offices participate directly in selling and servicing customers. The broad geographic scope of these offices enables the Company to provide a full range of facility services through intercompany sales referrals, multi-service “bundled” sales and national account sales. The Company also has designated a nationwide group of “ABM Family of Services” executives to market all of the Company’s facility services capabilities.

      The Company has a broad customer base, including airports, apartment complexes, city centers, colleges and universities, financial institutions, industrial plants, office buildings, retail stores, shopping centers and theme parks. No customer accounted for more than 5% of its revenues during the fiscal year ended October 31, 2002.

Employees

      The Company employs over 62,000 persons, of whom the vast majority are service employees who perform janitorial, parking, engineering, security, lighting, elevator and air conditioning services. Approximately 27,800 of these employees are covered under collective bargaining agreements. There are about 3,700 employees with executive, managerial, supervisory, administrative, professional, sales, marketing or clerical responsibilities, or other office assignments.

Environmental Matters

      The nature of the Company’s operations, primarily services, would not ordinarily involve it in environmental contamination. However, the Company’s operations are subject to various federal, state and/or local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, such as discharge into soil, water and air, and the generation, handling, storage, transportation and disposal of waste and hazardous substances. These laws generally have the effect of increasing costs and potential liabilities associated with the conduct of the Company’s operations, although historically they have not had a material adverse effect on the Company’s financial position, cash flows or its results of operations.

      The Company is currently involved in five proceedings relating to environmental matters: one involving alleged potential soil and groundwater contamination at a Company facility in Florida; one involving alleged potential soil contamination at a former Company facility in Arizona; one involving alleged potential soil and groundwater contamination at a former dry-cleaning facility leased by the Company in Nevada; one involving alleged potential soil contamination at a former parking facility leased by the Company in Washington; and one involving alleged potential soil and groundwater contamination at a third party recycling center in Southern California. While it is difficult to predict the ultimate outcome of these matters, based on information currently available, management believes that none of these matters, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Company’s financial position, cash flows, or results of operations. Two of the five proceedings are subject to ongoing settlement negotiations and a reserve of $300,000 has been set aside for the potential liability. The liability related to the other three claims is neither probable nor estimable, hence no accruals have been made related to these matters.

5

Executive Officers of ABM

      The executive officers of ABM are as follows:

6

ITEM 2. PROPERTIES

       The Company has corporate, division, regional, branch or district offices in over 250 locations throughout the United States and Canada. Fourteen of these facilities are owned by the Company. At October 31, 2002, the real estate owned by the Company had an aggregate net book value of $3.6 million and was located in: Phoenix, Arizona; Fresno, California; Jacksonville and Tampa, Florida; Portland, Oregon; Arlington, Houston and San Antonio, Texas; and Kennewick, Seattle, Spokane and Tacoma, Washington.

      Rental payments under long and short-term lease agreements amounted to $100.2 million for the fiscal year ended October 31, 2002. Of this amount, $65.8 million in rental expense was attributable to public parking lots and garages leased and operated by Ampco System Parking. The remaining expense was for the rental or lease of office space, computers, operating equipment and motor vehicles.

ITEM 3. LEGAL PROCEEDINGS

       Not applicable.

       Not applicable.

PART II

Market Information and Dividends

      ABM’s common stock is listed on the New York Stock Exchange. The following table sets forth the high and low prices of ABM’s common stock and quarterly cash dividends on common shares for the periods indicated:

      On March 12, 2002, ABM’s Board of Directors declared a 2-for-1 split of ABM’s common stock in the form of a 100% stock dividend payable on May 7, 2002 to stockholders of record on March 29, 2002. The per share amounts set forth above have been retroactively restated to reflect the stock split.

      At November 30, 2002, there were 4,451 registered holders of ABM’s common stock, in addition to stockholders in street name.

7

ITEM 6. SELECTED FINANCIAL DATA

       The selected financial data presented below is derived from the Company’s consolidated financial statements for each of the years in the five-year period ended October 31, 2002. The share data has been retroactively restated to reflect the stock split on March 12, 2002.

      Stockholders’ equity per common share is calculated by dividing stockholders’ equity at the end of the fiscal year by the number of shares of common stock outstanding at that date. This calculation may not be comparable to similarly titled measures reported by other companies.

8

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto contained in Item 8, “Financial Statements and Supplementary Data”. All information in the discussion and references to the years are based on the Company’s fiscal year that ends on October 31.

      On March 12, 2002, ABM’s Board of Directors declared a 2-for-1 split of ABM’s common stock in the form of a 100% stock dividend payable on May 7, 2002 to stockholders of record on March 29, 2002. Unless otherwise stated, all references to the number of shares of ABM’s common stock and per share amounts of ABM’s common stock have been retroactively restated to reflect the increased number of shares resulting from the stock split.

Financial Condition

      Funds provided from operations and bank borrowings have historically been the sources for meeting working capital requirements, financing capital expenditures and acquisitions, and paying cash dividends. Management believes that funds from these sources will remain available and adequately serve the Company’s liquidity needs. On June 28, 2002, the Company entered into a three-year unsecured revolving credit agreement with a syndicate of U.S. banks that provides a $150 million line of credit. This agreement replaced the Company’s unsecured revolving credit agreement in an equal amount that expired on July 1, 2002. Under the terms of the new credit 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, or prime rate for overnight borrowing. As of October 31, 2002, the total amount outstanding in the form of standby letters of credit was $102 million compared to $52 million as of October 31, 2001, which was comprised of $10 million of loans and $42 million of standby letters of credit. The increase is primarily due to the use of standby letters of credit instead of financial responsibility bonds for certain self-insurance agreements. The credit agreement requires the Company to meet certain financial ratios, places some limitations on outside borrowings, and restricts the amount of capital stock that the company may repurchase during a fiscal year. The Company’s effective weighted average interest rate (excluding amortization of related fees) for all Eurodollar, Prime and Fixed Rate borrowings for the year ended October 31, 2002 was 3.20%.

      Operating activities generated cash flows in 2002, 2001 and 2000 of $110.9 million, $65.8 million and $18.9 million, respectively. Operating cash flows have increased significantly, primarily due to higher cash collection from customers, and in 2002 the receipt of two partial settlements totaling $13.3 million in gross insurance proceeds related to the destruction of the World Trade Center in 2001.

      Net cash used in investing activities in 2002, 2001 and 2000 was $59.3 million, $27.0 million and $31.4 million, respectively. The increase in cash used in investing activities in 2002 from 2001 primarily reflects the down payment for the acquisition of Lakeside Building Maintenance (see Footnote 10 of the Financial Statements), which was by far the largest acquisition made by the Company during the last three years, offset by the decrease in capital expenditures in 2002 due to reduced investment in information technology as implementation of the Company’s new accounting system nears completion (see Footnote 1 of the Financial Statements). The cash used in investing activities in 2001 included $12 million of proceeds from the sale of Easterday Janitorial Supply in April 2001.

      Net cash used in financing activities decreased slightly to $35.2 million in 2002 from $37.7 million in 2001 primarily due to lower debt repayments partially offset by common stock purchases in 2002. In 2000, financing activities provided $12.3 million of net cash. This change in 2001 from 2000 was primarily due to repayments of bank debt in 2001 of $41.8 million compared with net borrowings in 2000 of $18.9 million.

      On September 16, 2001 the Company’s Board of Directors authorized the purchase of up to two million shares (post-split) of its outstanding stock at any time through December 31, 2001. On December 17, 2001, the Board of Directors extended this authorization to purchase until December 31, 2002. On December 10, 2002, the Board of Directors extended this authorization through January 31, 2003. As of October 31, 2002, the Company had purchased 1.4 million shares at a cost of $23.6 million (i.e. an average price per share of $16.88) under this authorization.

9

      At October 31, 2002, working capital was $210.7 million, compared to $229.5 million at October 31, 2001. The largest component of working capital consists of trade accounts receivable that totaled $318.4 million at October 31, 2002, compared to $367.2 million at October 31, 2001. These amounts were net of allowances for uncollectible accounts of $6.6 million and $9.4 million at October 31, 2002 and October 31, 2001, respectively. As of October 31, 2002, accounts receivable that were over 90 days past due had decreased by $14.3 million to $41.6 million (13% of the total outstanding) from $55.9 million (15% of the total outstanding) at October 31, 2001, primarily due to increased collection efforts.

      The Company made five cash advances totaling $3.4 million in 2002 to SiteStuff, Inc. as part of a secured convertible promissory note agreement. SiteStuff, Inc. is an e-commerce enterprise within the real estate industry designed to provide owners and managers of real estate the ability to aggregate their buying power for procurement of goods and services. The provisions of this note agreement provide for additional advances payable upon written request by SiteStuff, Inc. at any time prior to May 13, 2003, up to a maximum advance of the lesser of $4.0 million or 80% of its current customer receivables. Interest of 5% on any outstanding amount is payable in arrears at the end of each calendar quarter. The note is secured by the customer accounts of SiteStuff, Inc., as well as records, cash accounts and proceeds related to those accounts.

      The Company self-insures certain insurable risks such as general liability, property damage and workers’ compensation. Commercial umbrella policies are obtained to provide for $125 million of coverage above the self-insured retention limits (i.e. deductible). As of November 1, 2002, substantially all of the self-insured retentions increased from $500,000 to $1 million per occurrence due to the general insurance market conditions. Despite the increased retention, the price of recent renewals of 2003 umbrella policies is significantly higher and this has been factored into the self-insurance rates charged by the Company to its divisions in 2003. The Company annually retains an outside actuary to review the adequacy of its self-insurance claim reserves.

Contractual Obligations and Commercial Commitments

      The Company is contractually obligated to make future payments under non-cancelable operating lease agreements. As of October 31, 2002, future contractual payments were as follows:

      Additionally, the Company has the following commercial commitments (in thousands):