ABM INDUSTRIES INC /DE/ - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended July 31, 2003


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

For the transition period from ______ to ______

Commission file number 1-8929

ABM INDUSTRIES INCORPORATED

(Exact name of registrant as specified in its charter)


Delaware		94-1369354
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


160 Pacific Avenue, Suite 222, San Francisco, California		94111
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes No x

Number of shares of common stock outstanding as of August 31, 2003: 49,398,585.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements (Unaudited)
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
	PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Exhibit 3.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

ABM INDUSTRIES INCORPORATED
FORM 10-Q

For the three months and nine months ended July 31, 2003

Table of Contents


PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 6.	Exhibits and Reports on Form 8-K	32
SIGNATURES		34
EXHIBIT INDEX		35

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			July 31,			October 31,
(In thousands except share amounts)			2003			2002

ASSETS
Current assets
	Cash and cash equivalents		$	26,864		$	19,416
	Trade accounts receivable, net			302,932			296,634
	Inventories			22,919			24,471
	Deferred income taxes			34,073			30,002
	Prepaid expenses and other current assets			41,354			39,501
	Assets held for sale			28,831			32,136

		Total current assets		456,973			442,160

Investments and long-term receivables				13,367			14,952
Property, plant and equipment, at cost
	Land and buildings			5,080			5,114
	Transportation equipment			14,596			14,245
	Machinery and other equipment			72,922			71,548
	Leasehold improvements			13,971			14,336

				106,569			105,243
	Less accumulated depreciation and amortization			(73,035	)		(69,397	)

		Property, plant and equipment, net		33,534			35,846

Goodwill				182,814			164,009
Deferred income taxes				34,587			33,542
Other assets				18,705			14,430

Total assets			$	739,980		$	704,939

(Continued)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)


				July 31,			October 31,
(In thousands except share amounts)				2003			2002

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Trade accounts payable			$	45,358		$	48,995
	Income taxes payable				7,443			6,579
	Liabilities held for sale				7,869			7,403
	Accrued liabilities:
		Compensation			61,538			58,814
		Taxes — other than income			13,868			13,525
		Insurance claims			54,828			50,969
		Other			55,291			40,805

			Total current liabilities		246,195			227,090
Retirement plans					24,449			23,791
Insurance claims					70,309			67,388

			Total liabilities		340,953			318,269

Stockholders’ equity
	Preferred stock, $0.01 par value; 500,000 shares authorized; none issued				—			—
	Common stock, $0.01 par value, 100,000,000 shares authorized; 51,487,000 and 50,397,000 shares issued at July 31, 2003 and October 31, 2002, respectively				515			504
	Additional paid-in capital				163,329			151,135
	Accumulated other comprehensive loss				(510	)		(789	)
	Retained earnings				271,417			259,452
	Cost of treasury stock (2,175,000 and 1,400,000 shares at July 31, 2003 and October 31, 2002, respectively)				(35,724	)		(23,632	)

			Total stockholders’ equity		399,027			386,670

Total liabilities and stockholders’ equity				$	739,980		$	704,939

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


			Three Months Ended				Nine Months Ended
			July 31,				July 31,
(In thousands except
per share amounts)			2003		2002		2003		2002

Revenues
	Sales and other income		$	569,093	$	514,260	$	1,684,074	$	1,512,935
	Gain on insurance claim			—		5,725		—		10,025

		Total revenues		569,093		519,985		1,684,074		1,522,960

Expenses
	Operating expenses and cost of goods sold			511,720		460,942		1,520,980		1,360,202
	Selling, general and administrative			41,689		44,290		127,027		113,580
	Interest			216		229		503		726

		Total expenses		553,625		505,461		1,648,510		1,474,508

Income from continuing operations before income taxes				15,468		14,524		35,564		48,452
Income taxes				4,912		2,633		12,010		15,523

Income from continuing operations				10,556		11,891		23,554		32,929
Income from discontinued operation, net of income taxes				1,182		743		2,414		1,685

Net income			$	11,738	$	12,634	$	25,968	$	34,614

Net Income per common share — Basic
	From continuing operations		$	0.21	$	0.24	$	0.48	$	0.67
	From discontinued operation			0.03		0.02		0.05		0.04

	Net Income		$	0.24	$	0.26	$	0.53	$	0.71

Net Income per common share — Diluted
	From continuing operations		$	0.21	$	0.23	$	0.47	$	0.64
	From discontinued operation			0.02		0.02		0.05		0.04

	Net Income		$	0.23	$	0.25	$	0.52	$	0.68

Average common and common equivalent shares
	Basic			49,269		49,059		49,105		49,093
	Diluted			50,244		51,179		50,031		51,117
Dividends per common share			$	0.095	$	0.090	$	0.285	$	0.270

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002


(In thousands)		2003			2002

Cash flows from operating activities:
	Cash received from customers	$	1,669,627		$	1,527,630
	Other operating cash receipts		2,806			8,525
	Interest received		711			441
	Cash paid to suppliers and employees		(1,614,658	)		(1,462,026	)
	Interest paid		(420	)		(856	)
	Income taxes paid		(15,284	)		(16,400	)

Net cash flows from continuing operating activities			42,782			57,314
Net cash flows from discontinued operation			6,276			5,836

	Net cash provided by operating activities		49,058			63,150

Cash flows from investing activities:
	Net cash flows from discontinued operation		(95	)		(101	)
	Additions to property, plant and equipment		(7,740	)		(5,611	)
	Proceeds from sale of assets		607			1,025
	Decrease in investments and long-term receivables		1,585			483
	Purchase of businesses		(21,099	)		(50,407	)

	Net cash used in investing activities		(26,742	)		(54,611	)

Cash flows from financing activities:
	Common stock issued		11,227			13,656
	Common stock purchases		(12,092	)		(16,670	)
	Dividends paid		(14,003	)		(13,283	)
	Increase in bank overdraft		—			4,281
	Long-term borrowings		—			15,000
	Repayments of long-term borrowings		—			(11,819	)

	Net cash used in financing activities		(14,868	)		(8,835	)

Net increase (decrease) in cash and cash equivalents			7,448			(296	)
Cash and cash equivalents beginning of period			19,416			3,041

Cash and cash equivalents end of period		$	26,864		$	2,745

(Continued)

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2003 AND 2002
(Continued)


(In thousands)		2003			2002

Reconciliation of net income to net cash provided by operating activities:
Net income		$	25,968		$	34,614
Less income from discontinued operation			(2,414	)		(1,685	)

Income from continuing operations			23,554			32,929
Adjustments:
	Depreciation and intangible amortization		11,085			11,276
	Provision for bad debts		4,665			6,562
	Gain on sale of assets		(77	)		(184	)
	Increase in deferred income taxes		(5,116	)		(739	)
	(Increase) decrease in trade accounts receivable		(10,914	)		19,545
	Decrease (increase) in inventories		1,566			(521	)
	Increase in prepaid expenses and other current assets		(1,134	)		(2,854	)
	Increase in other assets		(4,919	)		(2,051	)
	Increase (decrease) in income taxes payable		1,842			(138	)
	Increase in retirement plans accrual		658			746
	Increase in insurance claims liability		6,780			3,542
	Increase (decrease) in trade accounts payable and other accrued liabilities		14,792			(10,799	)

Total adjustments			19,228			24,385

Net cash flows from continuing operating activities			42,782			57,314
Net cash flows from discontinued operation			6,276			5,836

Net cash provided by operating activities		$	49,058		$	63,150

Supplemental data:
Non-cash investing activities:
	Common stock issued for net assets of business acquired	$	—		$	1,371

The accompanying notes are an integral part of the consolidated financial statements.

ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

In the opinion of management, the accompanying unaudited consolidated financial statements contain all material adjustments which are necessary to present fairly ABM Industries Incorporated and subsidiaries (the Company) financial position as of July 31, 2003, the results of operations for the three and nine months then ended, and cash flows for the nine months then ended. These adjustments are of a normal, recurring nature, except as otherwise noted.

The information included in this Form 10-Q should be read in conjunction with the management’s discussion and analysis, the consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the fiscal year ended October 31, 2002, as filed with the Securities and Exchange Commission.

The operations of the Company’s Elevator Segment, Amtech Elevator Services, Inc., have been classified as discontinued operation in the accompanying consolidated financial statements and, accordingly, the Company has segregated the assets and liabilities of the discontinued operation in the accompanying consolidated balance sheets for all periods presented. In addition, the Company has segregated the Amtech operating results and cash flows in the accompanying consolidated statements of income. See Note 7.

2. Net Income per Common Share

The Company has reported its earnings in accordance with SFAS No. 128, “Earnings per Share.” Basic net income per common s