Company Quick10K Filing
ABM Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 67 $2,432
10-K 2019-12-20 Annual: 2019-10-31
10-Q 2019-09-06 Quarter: 2019-07-31
10-Q 2019-06-06 Quarter: 2019-04-30
10-Q 2019-03-07 Quarter: 2019-01-31
10-K 2018-12-21 Annual: 2018-10-31
10-Q 2018-09-07 Quarter: 2018-07-31
10-Q 2018-06-07 Quarter: 2018-04-30
10-Q 2018-03-07 Quarter: 2018-01-31
10-K 2017-12-22 Annual: 2017-10-31
10-Q 2017-09-07 Quarter: 2017-07-31
10-Q 2017-06-08 Quarter: 2017-04-30
10-Q 2017-03-08 Quarter: 2017-01-31
10-K 2016-12-21 Annual: 2016-10-31
10-Q 2016-09-08 Quarter: 2016-07-31
10-Q 2016-06-09 Quarter: 2016-04-30
10-Q 2016-03-09 Quarter: 2016-01-31
10-K 2015-12-17 Annual: 2015-10-31
10-Q 2015-09-03 Quarter: 2015-07-31
10-Q 2015-06-03 Quarter: 2015-04-30
10-Q 2015-03-04 Quarter: 2015-01-31
10-K 2014-12-17 Annual: 2014-10-31
10-Q 2014-09-04 Quarter: 2014-07-31
10-Q 2014-06-04 Quarter: 2014-04-30
10-Q 2014-03-05 Quarter: 2014-01-31
10-K 2013-12-18 Annual: 2013-10-31
10-Q 2013-09-05 Quarter: 2013-07-31
10-Q 2013-06-05 Quarter: 2013-04-30
10-Q 2013-03-07 Quarter: 2013-01-31
10-K 2012-12-20 Annual: 2012-10-31
10-Q 2012-09-06 Quarter: 2012-07-31
10-Q 2012-06-07 Quarter: 2012-04-30
10-Q 2012-03-06 Quarter: 2012-01-31
10-K 2011-12-23 Annual: 2011-10-31
10-Q 2011-09-09 Quarter: 2011-07-31
10-Q 2011-06-09 Quarter: 2011-04-30
10-Q 2011-03-10 Quarter: 2011-01-31
10-K 2010-12-23 Annual: 2010-10-31
10-Q 2010-09-03 Quarter: 2010-07-31
10-Q 2010-06-04 Quarter: 2010-04-30
10-Q 2010-03-04 Quarter: 2010-01-31
8-K 2019-12-18 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-10-01 Officers, Exhibits
8-K 2019-09-05 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-09-04 Officers, Exhibits
8-K 2019-06-05 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-03-27 Shareholder Vote
8-K 2019-03-06 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-01-03 Officers
8-K 2018-12-18 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-12-04 Amend Bylaw, Exhibits
8-K 2018-10-23 Officers, Exhibits
8-K 2018-09-06 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-09-04 Officers, Exhibits
8-K 2018-06-06 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-03-19 Other Events, Exhibits
8-K 2018-03-07 Shareholder Vote, Exhibits
8-K 2018-03-06 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-02-26 Other Events, Exhibits
8-K 2018-01-18 Regulation FD, Exhibits
ABM 2019-10-31
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
EX-10.18 abm10312019ex1018.htm
EX-10.19 abm10312019ex1019.htm
EX-10.35 abm10312019ex1035.htm
EX-21.1 abm10312019ex211.htm
EX-23.1 abm10312019ex231.htm
EX-31.1 abm10312019ex311.htm
EX-31.2 abm10312019ex312.htm
EX-32.1 abm10312019ex321.htm

ABM Industries Earnings 2019-10-31

ABM 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
JOBS 3,731 12,238 4,420 0 0 0 0 1,757 0%
FTDR 3,675 1,179 1,457 1,315 633 139 260 4,237 48% 16.3 12%
ABM 2,432 3,744 2,240 6,499 719 89 253 3,296 11% 13.0 2%
TRTN 2,426 9,996 7,659 93 20 346 1,291 9,471 22% 7.3 3%
KFY 2,163 2,407 1,142 1,992 0 187 295 1,962 0% 6.7 8%
AYR 1,543 8,634 6,613 921 0 206 818 6,535 0% 8.0 2%
MGRC 1,487 1,280 688 526 246 87 194 1,486 47% 7.7 7%
RCII 1,454 1,744 1,352 2,659 1,660 116 257 1,101 62% 4.3 7%
FORR 863 624 475 412 253 -2 27 933 61% 34.7 -0%
HSII 663 704 416 738 0 54 89 558 0% 6.3 8%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2019
or
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 
abmbuildingvalue.jpg
ABM INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
abmcollab.jpg
94-1369354
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
__________________________
One Liberty Plaza, 7th Floor
New YorkNew York 10006
(Address of principal executive offices)

(212) 297-0200
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
ABM
 
New York Stock Exchange
__________________________
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         No  

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  ☐    No  

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated
filer
Non-accelerated filer
Smaller reporting 
company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s common stock on April 30, 2019 as reported on the New York Stock Exchange on that date: $2,498,832,469

Number of shares of the registrant’s common stock outstanding as of December 17, 2019: 66,589,257
_______________________________________________ 
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the registrant’s Definitive Proxy Statement relating to the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
 




ABM INDUSTRIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS



FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”) contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1 of this Form 10-K under Item 1A., “Risk Factors,” and we urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.



1


PART I
ITEM 1. BUSINESS.
General
ABM Industries Incorporated, which operates through its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”), is a leading provider of integrated facility solutions with a mission to make a difference, every person, every day. Our history dates back to 1909, when American Building Maintenance Company began as a window washing company in San Francisco with one employee. In 1985, we were incorporated in Delaware under the name American Building Maintenance Industries, Inc., as the successor to the business originally founded in 1909. In 1994, we changed our name to ABM Industries Incorporated. Over the past twelve years, we have grown into a multi-segment facility solutions company, primarily through strategic acquisitions and new service offerings, increasing our revenue from $3 billion to more than $6 billion.
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The acquisition of OneSource in 2007 bolstered ABM as a leader in the janitorial market, while the Linc Group acquisition in 2010 established ABM as a “facility solutions” company with new service offerings, including lighting, mechanical, and electrical “technical solutions.” With demand increasing for industry-specific service providers, in 2012 we purchased Air Serv and established our first industry group, “aviation.” In recent years, we have strategically acquired companies in the United Kingdom, particularly with the GBM and Westway acquisitions, which expanded our janitorial and technical solutions businesses overseas. In 2017, we acquired GCA Services Group (“GCA”), a provider of integrated facility services to educational institutions and commercial facilities, for approximately $1.3 billion, the largest acquisition in ABM history. As a result of this acquisition, we are now a leading facility solutions provider in the education market. In recent years, we also evaluated all of our service offerings and sold our Security and Government Services businesses, which did not align with our long-term focus on industry groups.
Additionally, in 2015 we began a comprehensive transformational initiative (“2020 Vision”) to drive long-term, profitable growth through an industry-based go-to-market approach. As part of this initiative, we centralized key functional areas, strengthened our sales capabilities, and initiated investments in service delivery tools and processes to help support standard operating practices that we believe are foundational to our long-term success.
As a result of these strategic changes, we have strengthened our ability to offer Janitorial, Parking, Facilities Services, Building & Energy Solutions, and Airline Services, on a standalone basis or in combination, and positioned ourselves as a leading integrated facilities management company.
Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.


2


Contract Types
We generate revenues under several types of contracts, as explained below. Generally, the type of contract is determined by the nature of the services. Although many of our service agreements are cancelable on short notice, we have historically had a high rate of client retention and expect to continue maintaining long-term relationships with our clients. See Note 2, “Basis of Presentation and Significant Accounting Policies,” in the Notes to Consolidated Financial Statements for additional information regarding the contract types that are most common in each of our service lines.
Contract Type
Description
Monthly Fixed-Price
These arrangements are contracts in which the client agrees to pay a fixed fee every month over a specified contract term.
Square-Foot
Monthly square-foot arrangements are contracts in which the client agrees to pay a fixed fee every month based on the actual square footage serviced over a specified contract term.
Cost-Plus
These arrangements are contracts in which the clients reimburse us for the agreed-upon amount of wages and benefits, payroll taxes, insurance charges, and other expenses associated with the contracted work, plus a profit margin.
Tag Services
Tag services (work orders) generally consist of supplemental services requested by clients outside of the standard service specification and includes cleanup after tenant moves, construction cleanup, flood cleanup, and snow removal.
Transaction-Price
These are arrangements in which customers are billed a fixed price for each transaction performed on a monthly basis (e.g., wheelchair passengers served or airplane cabins cleaned).
Hourly
In hourly arrangements, the client is billed a fixed hourly rate for each labor hour provided.
Management Reimbursement
Under these parking arrangements, we manage a parking facility for a management fee and pass through the revenue and expenses associated with the facility to the owner.
Leased Location
Under these parking arrangements, we pay a fixed amount of rent plus a percentage of revenues derived from monthly and transient parkers to the property owner. We retain all revenues received and are responsible for most operating expenses incurred.
Allowance
Under these parking arrangements, we are paid a fixed amount or hourly fee to provide parking services, and we are responsible for certain operating expenses, as specified in the contract.
Energy Savings Contracts and Fixed-Price Repair and Refurbishment
Under these arrangements, we agree to develop, design, engineer, and construct a project. Additionally, as part of bundled energy solutions arrangements, we guarantee the project will satisfy agreed-upon performance standards.
Franchise
We franchise certain engineering services through individual and area franchises under the Linc Service and TEGG brands, which are part of ABM Technical Solutions.
Segment and Geographic Financial Information
Our current reportable segments consist of Business & Industry (“B&I”), Aviation, Technology & Manufacturing (“T&M”), Education, and Technical Solutions. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements for information related to the modification in our presentation of inter-segment revenues and the reorganization of our Healthcare business into our other industry groups, primarily B&I, during 2019. For segment and geographic financial information, see Note 19, “Segment and Geographic Information,” in the Notes to Consolidated Financial Statements.

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 REPORTABLE SEGMENTS AND DESCRIPTIONS
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B&I, our largest reportable segment, encompasses janitorial, facilities engineering, and parking services for commercial real estate properties, sports and entertainment venues, and traditional hospitals and non-acute healthcare facilities. B&I also provides vehicle maintenance and other services to rental car providers. We typically provide services in this segment pursuant to monthly fixed-price, square-foot, cost-plus, and parking arrangements (i.e., management reimbursement, leased location, or allowance) that are obtained through a competitive bid process as well as pursuant to tag services.
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Aviation supports airlines and airports with services ranging from parking and janitorial to passenger assistance, catering logistics, air cabin maintenance, and transportation. We typically provide services to clients in this segment under master services agreements. These agreements are typically re-bid upon renewal and are generally structured as monthly fixed-price, square-foot, cost-plus, parking, transaction-price, and hourly arrangements. Two clients accounted for approximately 27% of revenues for this segment in 2019.
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T&M provides janitorial, facilities engineering, and parking services to industrial and high-tech manufacturing facilities. We typically provide these services pursuant to monthly fixed-price, square-foot, cost-plus, and parking arrangements that are obtained through a competitive bid process as well as pursuant to tag services.
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Education delivers janitorial, custodial, landscaping and grounds, facilities engineering, and parking services for public school districts, private schools, colleges, and universities. These services are typically provided pursuant to monthly fixed-price, square-foot, and cost-plus arrangements that are obtained through either a competitive bid process or re-bid upon renewal as well as pursuant to tag services.
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Technical Solutions specializes in mechanical and electrical services. These services can also be leveraged for cross-selling across all of our industry groups, both domestically and internationally. Contracts for this segment are generally structured as energy savings and fixed-price repair and refurbishment contracts and franchise arrangements.

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Service Marks, Trademarks, and Trade Names
We hold various service marks, trademarks, and trade names, such as “ABM,” “ABM Building Value,” “ABM Greencare,” “Linc Service,” “MPower,” “OmniServ,” and “TEGG,” which we deem important to our marketing activities, to our business, and, in some cases, to the franchising activities conducted by our Technical Solutions segment.
Dependence on Significant Client
No client accounted for more than 10% of our consolidated revenues during 2019, 2018, or 2017.
Competition
We believe that each aspect of our business is highly competitive and that such competition is based primarily on price, quality of service, efficiency enhancements, adapting to changing workplace conditions, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from projects requiring competitive bids; however, an invitation to bid is often conditioned upon prior experience, industry expertise, and financial strength. The low cost of entry in the facility services business results in a very competitive market. We mainly compete with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with competitive advantages in those regards. We also compete indirectly with companies that can perform for themselves one or more of the services we provide.
Sales and Marketing
Our sales and marketing activities include digital engagement and direct interactions with prospective and existing clients, pricing, proposal management, and customer relationship management by dedicated business development teams, operations personnel, and management. These activities are executed by branch and regional sales, marketing, and operations teams assigned to our industry groups and are supported by centralized sales support teams, inside sales teams, corporate marketing personnel, and our Center of Excellence teams. These sales and marketing teams acquire, nurture, and manage leads, as well as train personnel on sales tools and proposal systems, all governed by standard operating procedures.
Regulatory Environment and Environmental Compliance
Our 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. From time to time we are involved in environmental matters at certain of our locations or in connection with our operations. Historically, the cost of complying with environmental laws or resolving environmental issues relating to locations or operations in the United States or abroad has not had a material adverse effect on our financial position, results of operations, or cash flows.
Corporate Responsibility and Sustainability
As a company with more than 110 years’ experience, we understand the need to embed corporate responsibility into our business practices to create value and support the long-term success of our business, shareholders, clients, and team members.
Our strategy has evolved over the years to align with our stakeholders’ expectations regarding environmental, social, and governance policies. Recently, we have established three strategic axes of our sustainability strategy based on the topics that are most material to our business: doing business in a responsible way and creating value for clients; improving our value chain continuously; and positively impacting the ecosystem.
Since 2011, we have voluntarily published a Sustainability Report on an annual basis in alignment with the Global Reporting Initiative framework to address our business, our team members, and the environment. More information can be found in the corporate sustainability section of our corporate website.
Employees
As of October 31, 2019, we employed approximately 140,000 persons, of which approximately 45,000, or 32%, were subject to various local collective bargaining agreements.

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Available Information
Our corporate website is www.abm.com. The content on any website referred to in this filing does not constitute, and should not be viewed as, a part of this Annual Report, and our website is not incorporated into this or any of our other filings with the Securities and Exchange Commission (“SEC”). We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. Additionally, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Executive Officers of Registrant
Executive Officers on December 20, 2019
Name
 
Age
 
Principal Occupations and Business Experience
Scott Salmirs
 
57
 
President and Chief Executive Officer of ABM since March 2015; Executive Vice President of ABM from September 2014 to March 2015, with global responsibility for ABM’s Aviation division and all international activities; Executive Vice President of ABM’s Onsite Services division focused on the Northeast from 2003 to September 2014; Member of the Board of Directors of ABM since January 2015.
D. Anthony Scaglione
 
47
 
Executive Vice President and Chief Financial Officer of ABM since April 2015; Senior Vice President, Treasurer, and Head of Mergers and Acquisitions of ABM from January 2012 to April 2015; Vice President and Treasurer of ABM from June 2009 to January 2012; Chairman of the Board of the Association for Financial Professionals (AFP), the professional society that represents finance executives across the globe, from November 2014 to October 2016.
Andrew D. Block
 
51
 
Executive Vice President and Chief Human Resources Officer of ABM since June 2018; Senior Vice President, Talent and Organizational Performance (Chief HR Officer) of Buffalo Wild Wings, Inc. from April 2010 to June 2018; Director of Human Resources of C.H. Robinson Worldwide, Inc. from December 2002 to April 2010.
Joshua H. Feinberg
 
45
 
Executive Vice President, Chief Strategy and Transformation Officer of ABM since November 2019; Managing Director and Partner of The Boston Consulting Group from July 2014 to November 2019; Principal of The Boston Consulting Group from February 2011 to July 2014; Project Leader of The Boston Consulting Group from August 2009 to February 2011.
Scott Giacobbe
 
57
 
Executive Vice President and Chief Revenue Officer of ABM since October 2019; Chief Operating Officer of ABM from November 2017 to October 2019; President of ABM’s U.S. Technical Solutions from November 2010 to November 2017.
Rene Jacobsen
 
58
 
Executive Vice President and Chief Facilities Services Officer of ABM since October 2019; President of ABM’s Business & Industry Group from February 2016 to October 2019; Executive Vice President of ABM’s West Region from April 2012 to February 2016; Executive Vice President and Chief Operating Officer of Temco Service Industries from November 2007 to April 2012.
Andrea R. Newborn
 
56
 
Executive Vice President, General Counsel, and Corporate Secretary of ABM since July 2017; Executive Vice President and General Counsel of TravelClick, Inc. from July 2014 to June 2017; Senior Vice President, General Counsel, and Secretary of The Reader’s Digest Association, Inc. from March 2007 to February 2014.
Dean A. Chin
 
51
 
Senior Vice President, Chief Accounting Officer, and Corporate Controller of ABM since June 2010; Vice President and Assistant Controller of ABM from June 2008 to June 2010.

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ITEM 1A. RISK FACTORS.
Risks Relating to Our Strategy and Operations
Our success depends on our ability to gain profitable business despite competitive market pressures.
Each aspect of our business is highly competitive and such competition is based primarily on price, quality of service, and ability to anticipate and respond to industry changes. A majority of our revenue is derived from services that require competitive bids. The low cost of entry in the facility services business results in a very competitive market. We compete mainly with regional and local owner-operated companies that may have more acute vision into local markets and significantly lower labor and overhead costs, providing them with a competitive advantage in those regards. We also compete indirectly with companies that can perform for themselves one or more of the services we provide. Further, if we are unable to respond adequately to changing technology, we may lose existing clients and fail to win future business opportunities. A failure to respond effectively to competitive pressures or failure in our ability to increase prices as costs rise could reduce margins and materially adversely affect our financial performance.
Our business success depends on our ability to attract and retain qualified personnel and senior management and to manage labor costs.
Our future performance depends on the continuing services and contributions of our senior management and on our continued ability to attract and retain qualified personnel. Any unplanned turnover in senior management or inability to attract and retain qualified personnel could have a negative effect on our results of operations. We employ approximately 140,000 persons, and our operations depend on the services of a large and diverse workforce. We must attract, train, and retain a large and growing number of qualified employees while controlling related labor costs. Our ability to control labor and benefit costs is subject to numerous internal and external factors, including changes in the unemployment rate, changes in immigration policy, regulatory changes, prevailing wage rates, and competition we face from other companies for qualified employees. Further, many of our contracts provide that our clients pay certain costs at specified rates, such as insurance, healthcare costs, salary and salary-related expenses, and other costs. If actual costs exceed the rates specified in the contracts, our profitability may be negatively impacted. There is no assurance that in the future we will be able to attract or retain qualified employees or effectively manage labor and benefit costs, which could have a material adverse effect on our business, financial condition, and results of operations.
Our ability to preserve long-term client relationships is essential to our continued success.
We primarily provide services pursuant to agreements that are cancelable by either party upon 30–90 days’ notice. As we generally incur higher initial costs on new contracts until the labor management and facilities operations normalize, our business associated with long-term client relationships is generally more profitable than short-term client relationships. If we lose a significant number of long-term clients, our profitability could be negatively impacted, even if we gain equivalent revenues from new clients.
We depend to a large extent on our relationships with clients and our reputation for quality integrated facility solutions. Maintaining our existing client relationships is an important factor contributing to our business success. Among other things, adverse publicity stemming from an accident or other incident involving our facility operations or employees related to injury, illness, death, or alleged criminal activity could harm our reputation, result in the cancellation of contracts or inability to retain clients, and expose us to significant liability.
Changes to our businesses, operating structure, financial reporting structure, or personnel relating to the implementation of strategic transformations, enhanced business processes, and technology initiatives may not have the desired effects on our financial condition and results of operations.
We may periodically engage in various initiatives intended to drive long-term profitable growth and increase operational efficiency. Planned changes to our business systems and processes may not create the operational efficiencies or cost benefits that we expect and could result in unanticipated consequences, including substantial disruption to our back-office operations and service delivery.
We may not be able to fully execute on such initiatives to the extent expected within the anticipated timeframe as a result of numerous factors, such as client resistance, inability to deliver requested end-to-end services, and difficulty penetrating certain markets. Moreover, these initiatives may not provide us with anticipated competitive advantage or revenue growth.

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Acquisitions, divestitures, and other strategic transactions could fail to achieve financial or strategic objectives, disrupt our ongoing business, and adversely impact our results of operations.
In furtherance of our business strategy, we routinely evaluate opportunities and may enter into agreements for possible acquisitions, divestitures, or other strategic transactions. In the past, a significant portion of our growth has been generated by acquisitions, and we may continue to acquire businesses in the future as part of our growth strategy. However, we may encounter challenges identifying opportunities in a timely manner or on terms acceptable to us. Furthermore, there is no assurance that any such transaction will result in synergistic benefits. A potential acquisition, divestiture, or other strategic transaction may involve a number of risks including, but not limited to:
the transaction may not effectively advance our business strategy, and its anticipated benefits may never materialize;
our ongoing operations may be disrupted, and management time and focus may be diverted;
clients or key employees of an acquired business may not remain, which could negatively impact our ability to grow that acquired business;
integration of an acquired business’s accounting, information technology, human resources, and other administrative systems may fail to permit effective management and expense reduction;
unforeseen challenges may arise in implementing internal controls, procedures, and policies;
additional indebtedness incurred as a result of an acquisition may impact our financial position, results of operations, and cash flows; and
unanticipated or unknown liabilities may arise related to an acquired business.
We manage our insurable risks through a combination of third-party purchased policies and self-insurance, and we retain a substantial portion of the risk associated with expected losses under these programs, which exposes us to volatility associated with those risks, including the possibility that adjustments to our ultimate insurance loss reserves could result in material charges against our earnings.
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. We are responsible for claims both within and in excess of our retained limits under our insurance policies, and while we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with certainty the frequency, nature, or magnitude of claims for direct or consequential damages. If our insurance coverage proves to be inadequate or unavailable, our business may be negatively impacted.
The determination of required insurance reserves is dependent upon actuarial judgments. We use the results of actuarial studies to estimate insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years. Actual experience related to our insurance reserves can cause us to change our estimates for reserves and any such changes may materially impact results, causing significant volatility in our operating results. We have previously experienced material adjustments to reserves resulting from negative trends in our actuarial estimates, and we may continue to experience these and other material negative trends in future periods.
Should we be unable to renew our excess, umbrella, or other commercial insurance policies at competitive rates, it could have a material 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 our losses, deterioration in our loss control and/or our continuing claim management efforts could increase the overall cost of claims within our retained limits. A material change in our insurance costs due to changes in the frequency of claims, the severity of the claims, the costs of excess/umbrella premiums, or regulatory changes could have a material adverse effect on our financial position, results of operations, or cash flows.
In 2015, we formed a wholly-owned captive insurance company, IFM Assurance Company (“IFM”), which we believe has provided us with increased flexibility in the end-to-end management of our insurance program. There can be no assurance that IFM will continue to bring about the intended benefits or the desired flexibility in the management of our insurance programs, because we may experience unanticipated events that will reduce or eliminate expected benefits, including anticipated savings related to coverage provided by IFM to our subsidiaries.

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Our risk management and safety programs may not have the intended effect of reducing our liability for personal injury or property loss.
We attempt to mitigate risks relating to personal injury or property loss through the implementation of company-wide safety and loss control efforts designed to decrease the incidence of accidents or events that might increase our liability. It is expected that any such decrease would also have the effect of reducing our insurance costs for our casualty programs. However, incidents involving personal injury or property loss may be caused by multiple potential factors, a significant number of which are beyond our control. Therefore, there can be no assurance that our risk management and safety programs will have the desired effect of controlling costs and liability exposure.
Our international business involves risks different from those we face in the United States that could have an effect on our results of operations and financial condition.
We have business operations in jurisdictions outside of the United States, most significantly in the United Kingdom (“U.K.”). Our international operations are subject to risks that are different from those we face in the United States and subject us to complex and frequently changing laws and regulations, including differing labor laws and regulations relating to the protection of certain information that we collect and maintain about our employees, clients, and other third parties. Among these laws is the U.K. Modern Slavery Act, the U.K. Bribery Act, and the European Union General Data Protection Regulation (the “GDPR”), which took effect in May 2018. The failure to comply with these laws or regulations could subject us to significant litigation, monetary damages, regulatory enforcement actions, or fines in one or more jurisdictions. More generally, the economic, political, monetary, and operational impacts of Brexit, including unanticipated impacts to the U.K. real estate market and general economic conditions in the United Kingdom, could negatively impact our U.K. business, including reducing our margins.
In addition, when we participate in joint ventures that operate outside of the United States where we are not a controlling party, we may have limited control over the joint venture. Any improper actions by our joint venture employees, partners, or agents, including but not limited to failure to comply with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and/or laws relating to human trafficking, could result in civil or criminal investigations, monetary and non-monetary penalties, or other consequences, any of which could have an adverse effect on our financial position as well as on our reputation and ability to conduct business.
Additionally, the operating results of our non-U.S. subsidiaries are translated into U.S. dollars, and those results are affected by movements in foreign currencies relative to the U.S. dollar. There can be no assurance that the foregoing factors will not have a material adverse effect on our international operations or on our consolidated financial condition and results of operations.
Our use of subcontractors or joint venture partners to perform work under customer contracts exposes us to liability and financial risk.
We depend on subcontractors or other parties, such as joint venture partners, to perform work in situations in which we are not able to self-perform the work involved. Such arrangements may involve subcontracts or joint venture relationships where we do not have direct control over the performing party. We may be exposed to liability whenever one or more of our subcontractors or joint venture partners, for whatever reason, fails to perform or allegedly negligently performs the agreed-upon services. Although we have in place controls and programs to monitor the work of our subcontractors and our joint venture partners, there can be no assurance that these controls or programs will have the desired effect, and we may incur significant liability as a result of the actions or inactions of one or more of our subcontractors or joint venture partners.
We may experience breaches of, or disruptions to, our information technology systems or those of our third-party providers or clients, or other compromises of our data that could adversely affect our business.
Our information technology systems and those of our third-party providers or clients could be the target of cyber attacks, hacking, unauthorized access, phishing, computer viruses, malware, or other intrusions, which could result in operational disruptions or information misappropriation, such as theft of intellectual property or inappropriate disclosure of confidential, proprietary, or personal information. We maintain confidential, proprietary, and personal information in our information technology systems and in systems of third-party providers relating to our current, former, and prospective employees, clients, and other third parties. We have experienced certain data and security breaches in the past and could experience future data or security breaches stemming from the intentional or negligent acts of our employees or other third parties. Furthermore, while we continue to devote significant resources to monitoring and updating our systems and implementing information security measures to protect our systems, there can be no assurance that the controls and procedures we have in place will be sufficient to protect us from future security breaches.

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As cyber threats are continually evolving, our controls and procedures may become inadequate and we may be required to devote additional resources to modifying or enhancing our systems in the future. We may also be required to expend resources to remediate cyber-related incidents or to enhance and strengthen our cyber security.
Any such disruptions to our information technology systems, breaches or compromises of data, and/or misappropriation of information could result in lost sales, negative publicity, litigation, violations of privacy and other laws, or business delays that could have a material adverse effect on our business. Additionally, we believe that along with the GDPR and the California Consumer Privacy Act, which goes into effect on January 1, 2020, further increased regulation is likely in the area of data privacy. Compliance with this rapidly expanding area of law will require significant management and financial resources, and we could be subjected to additional legal risk or financial losses if we are not in compliance.
Risks Relating to Labor, Legal Proceedings, Tax, and Regulatory Matters
Unfavorable developments in our class and representative actions and other lawsuits alleging various claims could cause us to incur substantial liabilities.
Our business involves employing tens of thousands of employees, many of whom work at our clients’ facilities. We incur risks relating to our employment of these workers, including but not limited to: claims of misconduct or negligence on the part of our employees; claims related to the employment of unlicensed personnel; and claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws. We also incur risks and claims related to the imposition on our employees of policies or practices of our clients that may be different from our own. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to alleged claims. Additionally, there are risks to all employers in some states, such as California, resulting from new and unanticipated judicial interpretations of existing laws and the application of those new interpretations against employers on a retroactive basis. It is not possible to predict the outcome of these lawsuits or any other proceeding, and our insurance may not cover all claims that may be asserted against us. These lawsuits and other proceedings may consume substantial amounts of our financial and managerial resources. An unfavorable outcome with respect to these lawsuits and any future lawsuits may, individually or in the aggregate, cause us to incur substantial liabilities that could have a material adverse effect upon our business, reputation, financial condition, or results of operations.
A significant number of our employees are covered by collective bargaining agreements that could expose us to potential liabilities in relationship to our participation in multiemployer pension plans, requirements to make contributions to other benefit plans, and the potential for strikes, work slowdowns or similar activities, and union organizing drives.
We participate in various multiemployer pension plans that provide defined pension benefits to employees covered by collective bargaining agreements. Because of the nature of multiemployer pension plans, there are risks to us associated with participation in these plans that differ from single-employer plans. Assets contributed by an employer to a multiemployer pension plan are not segregated into a separate account and are not restricted to provide benefits only to employees of that contributing employer. In the event another participating employer in a multiemployer pension plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers, including us. In the event of the termination of a multiemployer pension plan or a complete or partial withdrawal from a multiemployer pension plan, under applicable law we could incur material withdrawal liabilities. We further discuss our participation in multiemployer pension and postretirement plans in Note 14, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements. In addition, the terms of collective bargaining agreements require us to contribute to various fringe benefit plans, including health and welfare, pension, and training plans, all of which require us to have appropriate systems in place to assure timely and accurate payment of contributions. The failure to make timely and accurate contributions as a result of a systems failure could have a negative impact on our financial position.
At October 31, 2019, approximately 32% of our employees were subject to various local collective bargaining agreements, some of which will expire or become subject to renegotiation during 2020. In addition, at any given time we may face union organizing activity. When one or more of our major collective bargaining agreements becomes subject to renegotiation or when we face union organizing drives, any disagreement between us and the union on important issues may lead to a strike, work slowdown, or other job actions at one or more of our locations. In a market where we are unionized but competitors are not unionized, we could lose clients to such competitors. A strike, work slowdown, or other job action could disrupt our services, resulting in reduced revenues or contract cancellations.

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Moreover, negotiating a first time collective bargaining agreement or renegotiating an existing agreement could result in a substantial increase in labor and benefits expenses that we may be unable to pass through to clients.
Our business may be materially affected by changes to fiscal and tax policies. Negative or unexpected tax consequences could adversely affect our results of operations.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made significant changes to U.S. federal tax laws. Such changes include a reduction in the corporate tax rate as well as limitations on certain corporate deductions and credits that could have a negative impact on our business. The Tax Act requires significant judgments to be made in the interpretation of the law and significant estimates in the calculation of the provision for income taxes. However, additional guidance that may significantly differ from our interpretation of the law may be issued by the Internal Revenue Service (“IRS”), the Department of Treasury, or another governing body, which may result in a material adverse effect on our business, financial condition, results of operations, or cash flows. In addition, we are subject to tax audits by governmental authorities, primarily in the United States and United Kingdom. If we experience unfavorable results from one or more such tax audits, there could be an adverse effect on our tax rate and therefore on our net income.
Risks Relating to Market and Economic Conditions
Changes in general economic conditions, such as changes in energy prices, government regulations, or consumer preferences, could reduce the demand for facility services and, as a result, reduce our earnings and adversely affect our financial condition.
In certain geographic areas and service lines, our most profitable revenues are related to supplemental services requested by clients outside of the standard service specification (“tag work”). This contract type is commonly used in janitorial services and includes cleanup after tenant moves, construction cleanup, flood cleanup, and snow removal. A decline in occupancy rates could result in a decline in scope of work, including tag work, and depressed prices for our services. Slow domestic and international economic growth or other negative changes in global, national, and local economic conditions could have a negative impact on our business. Specifically, adverse economic conditions may result in clients cutting back on discretionary spending. Additionally, since a significant portion of our aviation services and parking revenues are tied to the volume of airline passengers, hotel guests, and sports arena attendees, results for these businesses could be adversely affected by curtailment of business, personal travel, or discretionary spending. The use of ride sharing services and car sharing services may also lead to a decline in parking demand at airports and in urban areas.
Energy efficiency projects are designed to reduce a client’s overall consumption of commodities, such as electricity and natural gas. As such, downward fluctuations in commodity prices may reduce client demand for those projects. We also depend, in part, on federal and state legislation and policies that support energy efficiency projects. If current legislation or policies are amended, eliminated, or not extended beyond their current expiration dates, or if funding for energy incentives is reduced or delayed, it could also adversely affect our ability to obtain new business. In some instances, we offer certain of these clients guaranteed energy savings on installed equipment. In the event those guaranteed savings are not achieved, we may be required to pay liquidated or other damages. All of these factors could have an adverse effect on our financial position, results of operations, and cash flows.
Risks Relating to Financial Matters
Future increases in the level of our borrowings or in interest rates could affect our results of operations.
Although we have paid down portions of our indebtedness under our syndicated secured credit facility, our future ability to make payments on our debt, fund our other liquidity needs, and make planned capital expenditures will depend on our ability to generate cash. Our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive, and other factors that are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from our operations or that future borrowings will be available to us in an amount sufficient to enable us to make payments on our debt, fund other liquidity needs, make planned capital expenditures, or continue our dividend.
The degree to which we are leveraged could have important consequences for shareholders. For example, it could: require us to dedicate a substantial portion of our cash flows from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, share repurchases, capital expenditures, acquisitions, and other general corporate purposes; limit our availability to obtain additional financing in the future to enable us to react to changes in our business; and place us at a competitive disadvantage compared to businesses in our industry that have less debt.

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Additionally, any future increase in the level of our indebtedness will likely increase our interest expense, which could negatively impact our profitability. Current interest rates on borrowings under our credit facility are variable and include the use of the London Interbank Offered Rate (“LIBOR”). In 2017, the U.K. Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In addition, other regulators have suggested reforming or replacing other benchmark rates. The discontinuation, reform, or replacement of LIBOR or any other benchmark rates may result in fluctuating interest rates that may have a negative impact on our interest expense and our profitability.
Further, our credit facility contains both financial covenants and other covenants that limit our ability to engage in specific transactions. Any failure to comply with covenants in the credit facility could result in an event of default that, if not cured or waived, would have a material adverse effect on us.
Impairment of goodwill and long-lived assets could have a material adverse effect on our financial condition and results of operations.
We evaluate goodwill for impairment annually, in the fourth quarter, or more often if impairment indicators exist. We also review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the fair value of one of our reporting units is less than its carrying value, or if as a result of a recoverability test we conclude that the projected undiscounted cash flows are less than the carrying amount, we would record an impairment charge related to goodwill or long-lived assets, respectively. The assumptions used to determine impairment require significant judgment and the amount of the impairment could have a material adverse effect on our reported financial results for the period in which the charge is taken.
If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be negatively impacted, which could harm our operating results and investor perceptions of our Company and as a result may have a material adverse effect on the value of our common stock.
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 and related rules, our management is required to report on, and our independent registered public accounting firm is required to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing, and, in some instances, remediation. We have acquired entities that had no publicly traded debt or equity and therefore were not previously required to conform to the rules and regulations of the SEC, especially related to their internal control structure. When we acquire such entities, they may not have in place all the necessary controls as required by the Public Company Accounting Oversight Board. Integrating acquired entities into our internal control over financial reporting has required and will continue to require significant time and resources from our management and other personnel, which increases our compliance costs. We are required to include our assessment of the effectiveness of the internal controls over financial reporting of entities we acquire in our overall assessment, so we must plan to complete the evaluation and integration of internal controls over financial reporting and report our assessment within the required time frame.
In addition, with the increasing frequency of cyber-related frauds perpetrated to obtain inappropriate payments, we need to ensure our internal controls related to authorizing the transfer of funds and changing our vendor master files are adequate. Failure to maintain an effective internal control environment could have a material adverse effect on our ability to accurately report our financial results, the market’s perception of our business, and our stock price.
Other Risks
Our business may be negatively impacted by adverse weather conditions.
Weather conditions such as snow storms, heavy flooding, hurricanes, and fluctuations in temperatures can negatively impact portions of our business. Within our Technical Solutions segment, cooler than normal temperatures in the summer could reduce the need for servicing of air conditioning units, resulting in reduced revenues and profitability. Within Parking and Aviation services, snow can lead to reduced travel activity, as well as increases in certain costs, both of which negatively affect gross profit. On the other hand, the absence of snow during the winter could cause us to experience reduced revenues in our B&I segment, as many of our contracts specify additional payments for snow-related services.

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Catastrophic events, disasters, and terrorist attacks could disrupt our services.
We may encounter disruptions involving power, communications, transportation or other utilities, or essential services depended upon by us or by third parties with whom we conduct business. This could include disruptions due to disasters, pandemics, weather-related or similar events (such as fires, hurricanes, blizzards, earthquakes, and floods), political instability, labor strikes, or war (including acts of terrorism or hostilities) that could impact our markets. If a disruption occurs in one location and persons in that location are unable to communicate with or travel to or work from other locations, our ability to service and interact with our clients and others may suffer, and we may not be able to successfully implement contingency plans that depend on communications or travel. These events may increase the volatility of financial results due to unforeseen costs with partial or no corresponding compensation from clients. There also can be no assurance that the disaster recovery and crisis management procedures we employ will suffice in any particular situation to avoid a significant loss. In addition, to the extent centralized administrative locations are disabled for a long period of time, key business processes, such as accounts payable, information technology, payroll, and general management operations, could be interrupted.
Actions of activist investors could disrupt our business.
Public companies have been the target of activist investors. In the event that a third party, such as an activist investor, proposes to change our governance policies, board of directors, or other aspects of our operations, our review and consideration of such proposals may create a significant distraction for our management and employees. This could negatively impact our ability to execute various strategic initiatives and may require management to expend significant time and resources responding to such proposals. Such proposals may also create uncertainties with respect to our financial position and operations and may adversely affect our ability to attract and retain key employees. 
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our principal executive office is located at One Liberty Plaza, 7th Floor, New York, New York 10006. As part of our 2020 Vision, in 2016 we began consolidating our operations to increase efficiency and effectiveness.
Principal Properties as of October 31, 2019
Location
 
Character of Office
 
Approximate Square Feet
 
Lease Expiration Date, Unless Owned
 
Segment
Alpharetta, Georgia
 
IT Datacenter and Technical Solutions Headquarters
 
25,000
 
Owned
 
All
Atlanta, Georgia
 
Operations Support
 
37,000
 
10/31/2027
 
All
Cleveland, Ohio
 
Legacy GCA Headquarters
 
32,400
 
1/31/2024
 
Education, T&M, and Corporate
New York, New York
 
Corporate Headquarters
 
44,000(1)
 
1/3/2032
 
Corporate and B&I
Sugar Land, Texas
 
Enterprise Services
 
62,500
 
3/31/2028
 
All
Tustin, California
 
Operations Support
 
40,000
 
7/31/2029
 
B&I and Technical Solutions
(1) Approximately 10,000 square feet are sublet.
In addition to the above properties, we have other offices, warehouses, and parking facilities in various locations, primarily in the United States. We believe that these properties are well maintained, in good operating condition, and suitable for the purposes for which they are used.

13


ITEM 3. LEGAL PROCEEDINGS.
We are a party to a number of lawsuits, claims, and proceedings incident to the operation of our business, including those pertaining to labor and employment, contracts, personal injury, and other matters, some of which allege substantial monetary damages. Some of these actions may be brought as class actions on behalf of a class or purported class of employees. While the results of these lawsuits, claims, and proceedings cannot be predicted with any certainty, our management believes that the final outcome of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.
Certain Legal Proceedings
Certain lawsuits to which we are a party are discussed below. In determining whether to include any particular lawsuit or other proceeding, we consider both quantitative and qualitative factors. These factors include, but are not limited to: the amount of damages and the nature of any other relief sought in the proceeding; if such damages and other relief are specified, our view of the merits of the claims; whether the action is or purports to be a class action, and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; and the potential impact of the proceeding on our reputation.
The Consolidated Cases of Bucio and Martinez v. ABM Janitorial Services filed on April 7, 2006, pending in the Superior Court of California, County of San Francisco (the “Bucio case”)
The Bucio case is a class action pending in San Francisco Superior Court that alleges we failed to provide legally required meal periods and make additional premium payments for such meal periods, pay split shift premiums when owed, and reimburse janitors for travel expenses. There is also a claim for penalties under the California Labor Code Private Attorneys General Act (“PAGA”). On April 19, 2011, the trial court held a hearing on plaintiffs’ motion to certify the class. At the conclusion of that hearing, the trial court denied plaintiffs’ motion to certify the class. On May 11, 2011, the plaintiffs filed a motion to reconsider, which was denied. The plaintiffs appealed the class certification issues. The trial court stayed the underlying lawsuit pending the decision in the appeal. The Court of Appeal of the State of California, First Appellate District (the “Court of Appeal”), heard oral arguments on November 7, 2017. On December 11, 2017, the Court of Appeal reversed the trial court’s order denying class certification and remanded the matter for certification of a meal period, travel expense reimbursement, and split shift class. The case was remitted to the trial court for further proceedings on class certification, discovery, dispositive motions, and trial.
On September 20, 2018, the trial court entered an order defining four certified subclasses of janitors who were employed by the legacy ABM janitorial companies in California at any time between April 7, 2002 and April 30, 2013, on claims based on alleged previous automatic deduction practices for meal breaks, unpaid meal premiums, unpaid split shift premiums, and unreimbursed business expenses, such as mileage reimbursement for use of personal vehicles to travel between worksites. On February 1, 2019, the trial court held that the discovery related to PAGA claims allegedly arising after April 30, 2013 would be stayed until after the class and PAGA claims accruing prior to April 30, 2013 had been tried. The parties engaged in mediation in July 2019, which did not result in settlement of the case. On October 17, 2019, the plaintiffs filed a motion asking the trial court to certify additional classes based on an alleged failure to maintain time records, an alleged failure to provide accurate wage statements, and an alleged practice of combining meal and rest breaks. Our response to this motion was filed on November 4, 2019, and the trial court heard the matter on December 10, 2019. This matter is currently set for trial on May 26, 2020. Prior to trial, we will have the opportunity to move for summary judgment, seek decertification of the classes, or engage in further mediation, if we deem such actions appropriate. We expect to engage in one or more such activities in upcoming quarters.
Castro and Marmolejo v. ABM Industries, Inc., et al., filed on October 24, 2014, pending in the United States District Court for the Northern District of California (the “Castro case”)
On October 24, 2014, Plaintiff Marley Castro filed a class action lawsuit alleging that ABM did not reimburse janitorial employees in California for using their personal cell phones for work-related purposes, in violation of California Labor Code section 2802. On January 23, 2015, Plaintiff Lucia Marmolejo was added to the case as a named plaintiff. On October 27, 2017, plaintiffs moved for class certification seeking to represent a class of all employees who were, are, or will be employed by ABM in the State of California with the Employee Master Job Description Code “Cleaner” (hereafter referred to as “Cleaner Employees”) beginning from October 24, 2010. ABM filed its opposition to class certification on November 27, 2017. On January 26, 2018, the district court granted plaintiffs’ motion for class certification. The court rejected plaintiffs’ proposed class, instead certifying three classes that the court formulated on its own: (1) all employees who were, are, or will be employed by ABM in the State of California as Cleaner Employees who used a personal cell phone to punch in and out of the EPAY system and who (a) worked at an ABM facility that did not provide a biometric clock and (b) were not offered an ABM-provided cell phone during the period

14


beginning on January 1, 2012, through the date of notice to the Class Members that a class has been certified in this action; (2) all employees who were, are, or will be employed by ABM in the State of California as Cleaner Employees who used a personal cell phone to report unusual or suspicious circumstances to supervisors and were not offered (a) an ABM-provided cell phone or (b) a two-way radio during the period beginning four years prior to the filing of the original complaint, October 24, 2014, through the date of notice to the Class Members that a class has been certified in this action; and (3) all employees who were, are, or will be employed by ABM in the State of California as Cleaner Employees who used a personal cell phone to respond to communications from supervisors and were not offered (a) an ABM-provided cell phone or (b) a two-way radio during the period beginning four years prior to the filing of the original complaint, October 24, 2014, through the date of notice to the Class Members that a class has been certified in this action.
On February 9, 2018, ABM filed a petition for permission to appeal the district court’s order granting class certification with the United States Court of Appeals for the Ninth Circuit, which was denied on April 30, 2018. On March 20, 2018, ABM moved to compel arbitration of the claims of certain class members pursuant to the terms of three collective bargaining agreements. In response to that motion, on May 14, 2018, the district court modified the class definition to exclude all claims arising after the operative date(s) of the applicable collective bargaining agreements (which is June 1, 2016 for one agreement and May 1, 2016 for the other two agreements). However, the district court denied the motion to compel arbitration as to claims that arose prior to the operative date(s) of the applicable collective bargaining agreements. ABM appealed to the Ninth Circuit the district court’s order denying the motion to compel arbitration with respect to the periods preceding the operative dates of the collective bargaining agreements.
After a court-ordered mediation held on October 15, 2018, the parties agreed to a class action settlement of $5.4 million, subject to court approval. The plaintiffs’ motion for preliminary approval of the settlement was filed on January 4, 2019, and the court held a hearing on the motion on February 12, 2019. On February 14, 2019, the court granted preliminary approval of the settlement. The court granted final approval of the settlement on September 3, 2019, and the settlement was funded on September 23, 2019. In connection with the settlement, we modified our existing written policies for California to expressly confirm that ABM service workers are not required to use personal cell phones for work purposes and began centralizing the process and implementing technology for such employees to request reimbursement for personal cell phone use due to work. Because the settlement was finally approved, on October 31, 2019, ABM dismissed its Ninth Circuit appeal regarding the district court’s order denying the motion to compel arbitration.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.


15


PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information, Dividends, and Stockholders
Our common stock is listed on the New York Stock Exchange (NYSE: ABM). We have paid cash dividends every quarter since 1965. Future dividends will be determined based on our earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors.
At December 17, 2019, there were 3,127 registered holders of our common stock.
Common Stock Repurchases
On September 2, 2015, our Board of Directors authorized a program to repurchase up to $200.0 million of our common stock (the “2015 Share Repurchase Program”). We did not repurchase any shares during the fourth quarter of 2019. At October 31, 2019, authorization for $134.1 million of repurchases remained under our 2015 Share Repurchase Program. Effective December 18, 2019, our Board of Directors replaced the 2015 Share Repurchase Program with a new share repurchase program under which we may repurchase up to $150.0 million of our common stock. These purchases may take place on the open market or otherwise, and all or part of the repurchases may be made pursuant to Rule 10b5-1 plans or in privately negotiated transactions. The timing of repurchases is at our discretion and will depend upon several factors, including market and business conditions, future cash flows, share price, share availability, and other factors at our discretion. Repurchased shares are retired and returned to an authorized but unissued status. The repurchase program may be suspended or discontinued at any time without prior notice.

16


Performance Graph
The following graph compares the five-year cumulative total return for our common stock against the Standard & Poor’s 500 Index (“S&P 500”) and the Standard & Poor’s SmallCap 600 Index (“S&P 600”). As our competitors are principally privately held, we do not believe it is feasible to construct a peer group comparison on an industry or line-of-business basis.
performancegraph2019.jpg
 
 
INDEXED RETURNS
Years Ended October 31,
Company / Index
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
ABM Industries Incorporated
 
$
100

 
$
104.9

 
$
147.3

 
$
160.8

 
$
120.3

 
$
145.6

S&P 500 Index
 
100

 
105.2

 
109.9

 
135.9

 
145.9

 
166.8

S&P SmallCap 600 Index
 
100

 
102.9

 
109.4

 
139.9

 
147.8

 
152.5

This performance graph shall not be deemed to be “soliciting material” or “filed” with the Securities and Exchange Commission, or subject to Regulation 14A or 14C, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended. The comparisons in the performance graph are based on historical data and are not indicative of, or intended to forecast, the possible future performance of our common stock.


17


ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8., “Financial Statements and Supplementary Data.” Unless otherwise indicated, all references to years are to our fiscal year, which ends on October 31.
 
Years Ended October 31,
 
2019
 
2018
 
2017
 
2016
 
2015
(in millions, except per share amounts)
 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income Data
 
 
 
 
 
 
 
 
 
Revenues(1)(2)
$
6,498.6

 
$
6,442.2

 
$
5,453.6

 
$
5,144.7

 
$
4,897.8

Operating profit(3)
208.3

 
138.6

 
101.9

 
54.7

 
73.6

Income from continuing operations
127.5

 
95.9

 
78.1

 
62.3

 
54.1

(Loss) income from discontinued operations, net of taxes(4)
(0.1
)
 
1.8

 
(74.3
)
 
(5.1
)
 
22.2

Per Share Data
 
 
 
 
 
 
 
 
 
Net income per common share — Basic
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.92

 
$
1.45

 
$
1.35

 
$
1.11

 
$
0.95

Net income
$
1.91

 
$
1.48

 
$
0.07

 
$
1.02

 
$
1.35

Net income per common share — Diluted
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.91

 
$
1.45

 
$
1.34

 
$
1.09

 
$
0.94

Net income
$
1.90

 
$
1.47

 
$
0.07

 
$
1.01

 
$
1.33

Weighted-average common and common
equivalent shares outstanding
 
 
 
 
 
 
 
 
 
Basic
66.6

 
66.1

 
57.7

 
56.3

 
56.7

Diluted
66.9

 
66.4

 
58.3

 
56.9

 
57.4

Dividends declared per common share
$
0.720

 
$
0.700

 
$
0.680

 
$
0.660

 
$
0.640

Statements of Cash Flow Data
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities of continuing operations
$
262.8

 
$
299.7

 
$
101.7

 
$
110.5

 
$
145.5

Income tax payments (refunds), net(5)
20.6

 
(1.0
)
 
11.8

 
12.6

 
23.7

 
 
 
 
 
 
 
 
 
 
 
At October 31,
(in millions)
2019
 
2018
 
2017
 
2016
 
2015
Balance Sheet Data
 
 
 
 
 
 
 
 
 
Total assets
$
3,692.6

 
$
3,627.5

 
$
3,812.6

 
$
2,278.8

 
$
2,130.7

Trade accounts receivable, net of allowances(6)
1,013.2

 
1,014.1

 
1,038.1

 
803.7

 
742.9

Goodwill(7)
1,835.4

 
1,834.8

 
1,864.2

 
912.8

 
867.5

Other intangible assets, net of accumulated amortization(8)
297.2

 
355.7

 
430.1

 
103.8

 
111.4

Long-term debt, net(9)
744.2

 
902.0

 
1,161.3

 
268.3

 
158.0

Insurance claims
515.0

 
510.3

 
495.4

 
423.8

 
387.4

(1) Revenues in 2019 reflect the adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. Following the adoption of Topic 853, $48.6 million of rent expense related to service concession arrangements is now presented as a reduction of revenues, but was previously presented as an operating expense. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” and Note 3, “Revenues,” in the Financial Statements for additional information regarding the impact of adopting these ASUs.
(2) Revenues in 2018 included $858.1 million of incremental revenue from acquisitions, primarily $855.7 million related to the acquisition of GCA Services Group (“GCA”). Revenues in 2017 included $208.1 million of incremental revenue from acquisitions, including $169.7 million related to GCA.

18


(3) Factors affecting comparability of operating profit consisted of the following:
Operating profit in 2019 was positively impacted by higher gross margin, $14.5 million lower restructuring and related expenses, and a $13.6 million lower self-insurance adjustment related to prior year claims. Additionally, 2019 benefited from the absence of $26.5 million of impairment charges recognized during 2018.
Operating profit in 2018 was positively impacted by $67.6 million of incremental operating profit resulting from the GCA acquisition and an $11.8 million lower self-insurance adjustment, partially offset by $34.4 million of higher amortization expense and impairment charges of $26.5 million. Additionally, 2018 benefited from the absence of $24.2 million of transaction expenses incurred in 2017 related to the GCA acquisition, but this benefit was partially offset by the absence of a $17.4 million impairment recovery recorded in 2017 related to our Government Services business.
Operating profit in 2017 benefited from a $17.4 million impairment recovery, a $10.9 million lower self-insurance adjustment, a reduction in restructuring and related expenses, and procurement and organizational savings from our 2020 Vision initiatives, all partially offset by $24.2 million of transaction expenses related to the GCA acquisition.
Operating profit in 2016 was negatively impacted by insurance expense of $49.6 million, consisting of a $32.9 million unfavorable self-insurance adjustment related to prior year claims and $16.7 million of higher insurance expense due to an increase in the rate used to record our insurance reserves during 2016. Operating profit was also unfavorably impacted by $29.0 million of 2020 Vision restructuring and related charges and a $22.5 million impairment charge for our Government Services business, consisting of both goodwill and long-lived asset charges. Operating profit in 2016 was favorably impacted by approximately $22 million in savings from our 2020 Vision initiatives.
Operating profit in 2015 was negatively impacted by a $35.9 million unfavorable self-insurance adjustment related to prior year claims.
(4) We had income from discontinued operations in 2018 of $1.8 million due to an insurance reimbursement on a legal settlement and collection of previously written off receivables, partially offset by union audit settlements. The loss from discontinued operations in 2017 included legal settlements associated with our former Security business of $120.0 million. Income from discontinued operations for 2015 reflected the $14.4 million after-tax gain on the sale of the Security business.
(5) Net income tax payments during 2018 were impacted by a $19.4 million refund received for prior year legal settlements. Additionally, we had cash tax savings of approximately $6 million for 2019, $7 million for 2018, and $10 million for each of 2017 and 2016 related to coverage provided by IFM Assurance Company, our wholly-owned captive insurance company.
(6) Trade accounts receivable, net of allowances, increased by $118.1 million on September 1, 2017 as a result of the GCA acquisition.
(7) Goodwill decreased in 2018 due to an impairment charge of $20.3 million related to Westway Services Holdings (2014) Ltd. (“Westway”) and to a $7.0 million adjustment to the final GCA purchase price allocation. Goodwill increased by $933.9 million on September 1, 2017 as a result of the GCA acquisition and by $53.8 million on December 1, 2015 due to the Westway acquisition.
(8) In 2018, other intangible assets, net of accumulated amortization, was reduced by an impairment charge of $6.2 million related to Westway and a $1.0 million adjustment to the final GCA purchase price allocation. During 2017, we recorded $349.0 million of other intangible assets as a result of the GCA acquisition.
(9) On September 1, 2017, we refinanced and replaced our existing $800.0 million credit facility with a new secured $1.7 billion credit facility, which we partially used to fund the GCA acquisition. During 2015, we used the cash proceeds from the sale of the Security business to pay down a portion of our line of credit.






19


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to facilitate an understanding of the results of operations and financial condition of ABM Industries Incorporated and its subsidiaries (collectively referred to as “ABM,” “we,” “us,” “our,” or the “Company”). This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes (“Financial Statements”). This MD&A contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1. of this Form 10-K under Item 1A., “Risk Factors,” which are incorporated herein by reference. Our future results and financial condition may be materially different from those we currently anticipate.
Throughout the MD&A, amounts and percentages may not recalculate due to rounding. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.
Effective November 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of 2019; prior period financial statements were not adjusted. Refer to Note 2, “Basis of Presentation and Significant Accounting Policies,” and Note 3, “Revenues,” in the Financial Statements for additional information regarding the impact of adoption. Additionally, refer to “Segment Information” below for information regarding the modification of the presentation of inter-segment revenues and the reorganization of our Healthcare business during 2019.
Business Overview
ABM is a leading provider of integrated facility solutions, customized by industry, with a mission to make a difference, every person, every day. Our principal operations are in the United States, and in 2019 our U.S. operations generated approximately 93% of our revenues.
Strategic Growth
We remain focused on long-term, profitable growth related to both new and existing clients within our industry groups and across our many service lines. Our revenue strategy is predicated on pursuing new sales and targeting a favorable retention rate among existing contracts. Cross-selling and up-selling projects and services is also an integral part of our strategy. We believe operational leverage from our strategic growth initiatives, coupled with our continued focus on efficiency, will increase profitability.
Systems and Technology Transformation
We have initiated many technology-based modernization efforts that we believe will enable us to operate more efficiently and provide us with greater data and insights to enhance our business management capabilities. We believe these new tools and systems will equip us for long-term success and position us for an even stronger and more prosperous future.
Human Resources and Labor Management
During 2019 we launched our new cloud-based human capital management system as well as a new time and attendance system. These investments will create a human resources (“HR”) structure that centralizes and standardizes hiring and training practices, fostering a data-driven model to measure key metrics, such as employee retention and labor productivity, to help us make more informed decisions and ultimately manage certain costs. We have also introduced new tools to help our operators manage labor more efficiently and continue to invest in attracting, developing, and retaining talent.

20


Enterprise Resource Planning
During 2019 we also made progress with the multi-phased deployment of our new enterprise resource planning (“ERP”) system, and in the future we anticipate having a unified system where we can integrate our legacy ABM and our legacy GCA finance environments for the first time. This newly combined system will streamline the operational and financial execution of our business and lead to more effective decision making in the future.
Developments and Trends
Economic Labor Outlook
The U.S. economy continues to demonstrate positive underlying fundamentals, with expanding gross domestic product growth and improving employment conditions, which have led to historically low levels of both unemployment and underemployment across the country. These factors have contributed to the lower availability of qualified labor for our business and higher turnover in certain markets, as our employees have more job opportunities both inside and outside our industry. This in turn has caused, and may continue to cause, higher labor and related personnel costs.
Acquisition of GCA during 2017
On September 1, 2017 (the “Acquisition Date”), we acquired GCA, a provider of integrated facility services to educational institutions and commercial facilities. Refer to Note 4, “Acquisitions,” in the Financial Statements for more information on this transaction. Our consolidated statements of comprehensive income and statements of cash flows include GCA’s results of operations in 2019 and 2018, but exclude GCA’s results of operations in 2017 prior to the Acquisition Date.
Restructuring and Related Costs
We may periodically engage in various restructuring activities intended to drive long-term profitable growth and increase operational efficiency, which can include streamlining and realigning our overall organizational structure and reallocating resources. These activities may result in restructuring costs related to employee severance, other project fees, external support fees, lease exit costs, and asset impairment charges.
During 2019, our restructuring activities primarily related to the continued integration of GCA and other initiatives, including standardizing our financial systems and streamlining our operations by migrating and upgrading several key management platforms, such as our human resources information systems, ERP system, and labor management system. We also continued consolidating our real estate leases. Severance and other expenses associated with our Healthcare reorganization during 2019 were immaterial. We expect to incur additional restructuring charges, primarily related to some of our technology initiatives and other project fees, as we continue to consolidate our operational and financial processes.
 
 
Year Ended
 
 
(in millions)
 
October 31, 2019
 
Cumulative
Employee severance
 
$
4.6

 
$
18.0

Other project fees
 
4.5

 
12.3

External support fees
 
1.5

 
3.5

Lease exit costs
 
0.7

 
0.7

Total
 
$
11.2

 
$
34.6


21


Insurance Reserves
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. Insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage. We retain a substantial portion of the risk related to certain workers’ compensation and medical claims. Liabilities associated with these losses include estimates of both filed claims and incurred but not reported claims (“IBNR Claims”).
With the assistance of third-party actuaries, we periodically review our estimate of ultimate losses for IBNR Claims and adjust our required self-insurance reserves as appropriate. As part of this evaluation, we review the status of existing and new claim reserves as established by third-party claims administrators. The third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims, demographic factors, legislative matters, and case law, as appropriate. We compare actual trends to expected trends and monitor claims developments. The specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs, which includes the case reserves plus an actuarial estimate of reserves required for additional developments, such as IBNR Claims. We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.
The actuarial reviews continue to demonstrate that the changes we have made to our risk management program are positively impacting the frequency and severity of claims. There is some flattening of claims frequency reductions as compared to prior periods, but the claims management strategies and programs that we have implemented have resulted in better than anticipated improvements in early identification of certain claims that may potentially develop adversely. Furthermore, we continue to adjust our reserves consistent with known fact patterns. Based on the results of the actuarial reviews performed, we decreased our total reserves for known claims as well as our estimate of the loss amounts associated with IBNR Claims for prior periods by $3.4 million during 2019. In 2018, we increased our total reserves related to prior year claims by $10.2 million.
Divestiture of Government Services Business During 2017
On May 31, 2017, we completed the sale of our Government Services business for $35.5 million and recorded a pre-tax gain of $1.2 million, which gain is reflected in impairment loss (recovery) on our consolidated statements of comprehensive income. Prior to the sale of this business, we recorded a $17.4 million impairment recovery to adjust the fair value of certain previously impaired assets to the valuation of the assets as implied by the agreed-upon sales price, less estimated costs to sell. The reported results for this business are through the date of sale, and future results could include run-off costs. As this business has been sold and is no longer part of our ongoing operations, we have excluded a discussion of its results for the periods in this report.
Key Financial Highlights
Revenues increased by $56.4 million, or 0.9%, during 2019, as compared to 2018, primarily due to organic growth in our U.S. Technical Solutions business, partially offset by the loss of certain accounts across our other industry groups.
Operating profit increased by $69.7 million, or 50.3%, during 2019, as compared to 2018. The increase in operating profit is primarily attributable to higher gross margin, the absence of $26.5 million of impairment charges recognized during 2018, $14.5 million of lower restructuring and related expenses, and a $13.6 million lower self-insurance adjustment related to prior year claims.
We had a provision for taxes of $32.7 million during 2019, as compared to a benefit from taxes of $8.2 million during 2018, primarily due to a net discrete tax benefit of $23.2 million in 2018 related to the Tax Cuts and Jobs Act (the “Tax Act”).
Net cash provided by operating activities of continuing operations was $262.8 million during 2019.
Dividends of $47.7 million were paid to shareholders, and dividends totaling $0.720 per common share were declared during 2019.
At October 31, 2019, total outstanding borrowings under our credit facility were $808.4 million, and we had up to $574.2 million of borrowing capacity under our credit facility; however, covenant restrictions limited our actual borrowing capacity to $406.6 million.

22


Results of Operations
The Year Ended October 31, 2019 Compared with the Year Ended October 31, 2018
Consolidated
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Increase / (Decrease)
Revenues
$
6,498.6

 
$
6,442.2

 
$
56.4

 
0.9%
Operating expenses
5,767.5

 
5,747.4

 
20.1

 
0.3%
Gross margin
11.2
%
 
10.8
%
 
46 bps

 
 
Selling, general and administrative expenses
452.9

 
438.0

 
14.9

 
3.4%
Restructuring and related expenses
11.2

 
25.7

 
(14.5
)
 
(56.3)%
Amortization of intangible assets
58.5

 
66.0

 
(7.5
)
 
(11.3)%
Impairment loss

 
26.5

 
(26.5
)
 
NM*
Operating profit
208.3

 
138.6

 
69.7

 
50.3%
Income from unconsolidated affiliates
3.0

 
3.2

 
(0.2
)
 
(6.8)%
Interest expense
(51.1
)
 
(54.1
)
 
(3.0
)
 
(5.5)%
Income from continuing operations before income taxes
160.2

 
87.7

 
72.5

 
82.6%
Income tax (provision) benefit
(32.7
)
 
8.2

 
(40.9
)
 
NM*
Income from continuing operations
127.5

 
95.9

 
31.6

 
32.9%
(Loss) income from discontinued operations, net of taxes
(0.1
)
 
1.8

 
(1.9
)
 
NM*
Net income
127.4

 
97.8

 
29.6

 
30.3%
Other comprehensive income (loss)
 
 
 
 
 
 
 
Interest rate swaps and other
(22.4
)
 
21.9

 
(44.3
)
 
NM*
Foreign currency translation
1.6

 
(4.7
)
 
6.3

 
NM*
Income tax benefit (provision)
5.9

 
(5.9
)
 
11.8

 
NM*
Comprehensive income
$
112.5

 
$
109.0

 
$
3.5

 
3.2%
*Not meaningful
Revenues
Revenues increased by $56.4 million, or 0.9%, during 2019, as compared to 2018. The increase in revenues was attributable to organic growth, primarily in our U.S. Technical Solutions business, partially offset by the loss of certain accounts across our other industry groups. Revenues in 2019 reflect the adoption of Topic 853, which required rent expense of $48.6 million, primarily within Aviation, to be presented as a reduction of revenues versus the comparative period presentation of recording rent expense as an operating expense.
Operating Expenses
Operating expenses increased by $20.1 million, or 0.3%, during 2019, as compared to 2018. The increase was partially offset by the reclassification of $48.6 million of rent expense related to the adoption of Topic 853, as noted above. Gross margin increased by 46 bps to 11.2% in 2019 from 10.8% in 2018. The increase in gross margin was primarily associated with improved margins within our U.S. B&I business, a lower self-insurance adjustment related to prior year claims, and the impact of Topic 606 within our Technical Solutions business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $14.9 million, or 3.4%, during 2019, as compared to 2018. The increase in selling, general and administrative expenses was primarily related to:
an $18.1 million increase in technology investments and related support;
the absence of a $7.0 million reimbursement of previously expensed legal settlement costs received in the prior year;

23


a $3.9 million reserve established for an anticipated union pension settlement;
the absence of a $3.4 million benefit in the prior year resulting from actuarial evaluations performed on our medical and dental self-insurance plans; and
a $2.5 million reserve established for a non-recurring adjustment related to a client account.
This increase was partially offset by:
a $10.3 million decrease in legal settlement costs;
a $4.1 million decrease in compensation and related expenses; and
the absence of $2.2 million of acquisition costs incurred in the prior year related to the GCA acquisition.
Restructuring and Related Expenses
Restructuring and related expenses decreased by $14.5 million, or 56.3%, during 2019, as compared to 2018. The decrease was due to restructuring expenses incurred in the prior year following the acquisition of GCA, primarily severance, partially offset by other restructuring expenses incurred in the current year.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $7.5 million, or 11.3%, during 2019, as compared to 2018, primarily related to certain intangible assets being amortized using the sum-of-the-years’-digits method, which results in declining amortization expense over the assets’ useful lives.
Impairment Loss
During 2018, we recorded impairment charges on goodwill and customer relationships related to our U.K. Technical Solutions business totaling $26.5 million, which primarily reflected the declining operating performance of this business due to adverse impacts of Brexit and the resulting effects on microeconomic conditions in the U.K. retail sector.
Income Taxes from Continuing Operations
During 2019 and 2018, we had effective tax rates on income from continuing operations of 20.4% and (9.4)%, respectively, resulting in a provision for tax of $32.7 million and a benefit from tax of $8.2 million, respectively. Our effective tax rate for 2019 was impacted by the following discrete items: a $1.8 million benefit from the transition tax (including foreign tax credits); a $1.7 million benefit from state true-ups; a $1.6 million benefit from federal true-ups; a $1.3 million provision related to the Work Opportunity Tax Credit (“WOTC”); a $1.3 million benefit from expiring statutes of limitations; a $1.1 million benefit from the vesting of share-based compensation awards; and a $0.9 million benefit from research and development credits. Our effective tax rate for 2018 was impacted by the following discrete items: a $23.2 million benefit related to the Tax Act enactment; a $5.8 million benefit from expiring statutes of limitations; a $3.4 million benefit from the vesting of share-based compensation awards; a $2.8 million benefit for energy efficient government buildings; and a $1.0 million provision for certain tax credits, including WOTC.
Interest Rate Swaps and Other
During 2019, we recognized as a component of our comprehensive income a loss of $22.4 million related to our interest rate swaps, compared to a gain of $21.9 million during 2018, primarily due to underlying changes in the fair value of the interest rate swaps. Additionally, we continue to amortize the gain we realized in 2018 from the termination of our prior interest rate swaps from accumulated other comprehensive income (“AOCI”) to interest expense. During 2019 we amortized $4.1 million, net of taxes of $1.5 million, of that gain compared to $1.8 million, net of taxes of $0.7 million, amortized during 2018.
Foreign Currency Translation
During 2019, we recognized as a component of our comprehensive income a foreign currency translation gain of $1.6 million compared to a loss of $4.7 million during 2018. This change was due to fluctuations in the exchange rate between the U.S. Dollar (“USD”) and the Great Britain Pound (“GBP”). Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.

24


Segment Information
Our current reportable segments consist of Business & Industry (“B&I”), Aviation, Technology & Manufacturing (“T&M”), Education, and Technical Solutions. Effective November 1, 2018, we modified the presentation of inter-segment revenues, which are recorded at cost with no associated intercompany profit or loss and are eliminated in consolidation. Additionally, during the third quarter of 2019, we made changes to our operating structure to better align the services and expertise of our Healthcare business with our other industry groups, allowing us to leverage our existing branch network to support the long-term growth of this business. As a result, our former Healthcare portfolio is now included primarily in our B&I segment. Our prior period segment data has been reclassified to conform with our current period presentation. These changes had no impact on our previously reported consolidated financial statements.
Financial Information for Each Reportable Segment
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Increase / (Decrease)
Revenues
 
 
 
 
 
 
 
Business & Industry
$
3,251.4

 
$
3,268.4

 
$
(17.0
)
 
(0.5)%
Aviation
1,017.3

 
1,038.7

 
(21.4
)
 
(2.1)%
Technology & Manufacturing
917.0

 
925.4

 
(8.4
)
 
(0.9)%
Education
847.4

 
856.7

 
(9.3
)
 
(1.1)%
Technical Solutions
593.2

 
500.1

 
93.1

 
18.6%
Elimination of inter-segment revenues
(127.7
)
 
(147.1
)
 
19.4

 
13.2%
 
$
6,498.6

 
$
6,442.2

 
$
56.4

 
0.9%
Operating profit (loss)
 
 
 
 
 
 
 
Business & Industry
$
182.3

 
$
157.9

 
$
24.4

 
15.5%
Operating profit margin
5.6
%
 
4.8
%
 
78 bps

 
 
Aviation
21.1

 
23.2

 
(2.1
)
 
(8.9)%
Operating profit margin
2.1
%
 
2.2
%
 
(15) bps

 
 
Technology & Manufacturing
72.5

 
67.4

 
5.1

 
7.6%
Operating profit margin
7.9
%
 
7.3
%
 
62 bps

 
 
Education
39.0

 
44.1

 
(5.1
)
 
(11.4)%
Operating profit margin
4.6
%
 
5.1
%
 
(54) bps

 
 
Technical Solutions
55.4

 
21.8

 
33.6

 
NM*
Operating profit margin
9.3
%
 
4.4
%
 
497 bps

 
 
Government Services
(0.1
)
 
(0.8
)
 
0.7

 
90.1%
Operating profit margin
NM*

 
NM*

 
NM*

 
 
Corporate
(159.0
)
 
(168.8
)
 
9.8

 
5.8%
Adjustment for income from unconsolidated affiliates, included in Aviation
(3.0
)
 
(3.2
)
 
0.2

 
7.4%
Adjustment for tax deductions for energy efficient government buildings, included in Technical Solutions
0.1

 
(2.8
)
 
2.9

 
NM*
 
$
208.3

 
$
138.6

 
$
69.7

 
50.3%
*Not meaningful

25


Business & Industry
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
(Decrease) / Increase
Revenues
$
3,251.4

 
$
3,268.4

 
$
(17.0
)
 
(0.5)%
Operating profit
182.3

 
157.9

 
24.4

 
15.5%
Operating profit margin
5.6
%
 
4.8
%
 
78 bps

 
 
B&I revenues decreased by $17.0 million, or 0.5%, during 2019, as compared to 2018. The decrease was primarily attributable to the loss of certain accounts in our U.S. business, including the exit from certain lower margin or underperforming accounts, and a negative impact from fluctuations in foreign currency exchange rates related to our U.K. business. The decrease was partially offset by organic growth, including the targeted expansion of certain key clients within our U.S. business and the expansion of a contract that started in 2018 in our U.K. business. Management reimbursement revenues for this segment totaled $283.1 million and $276.6 million during 2019 and 2018, respectively.
Operating profit increased by $24.4 million, or 15.5%, during 2019, as compared to 2018. Operating profit margin increased by 78 bps to 5.6% in 2019 from 4.8% in 2018. The increase in operating profit margin was primarily associated with the exit from certain lower margin or underperforming accounts in our U.S. business, improvements in our labor management processes, and a decrease in unemployment taxes in certain states. This increase was partially offset by a provision for the settlement of a union health and welfare benefits audit. While labor challenges are present in certain areas of our B&I business, it is our most mature business and has the highest proportion of unionized labor.
Aviation
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Decrease
Revenues
$
1,017.3

 
$
1,038.7

 
$
(21.4
)
 
(2.1)%
Operating profit
21.1

 
23.2

 
(2.1
)
 
(8.9)%
Operating profit margin
2.1
%
 
2.2
%
 
(15) bps

 
 
Aviation revenues decreased by $21.4 million, or 2.1%, during 2019, as compared to 2018. The decrease in revenues primarily related to the adoption of Topic 853, which required rent expense of $46.8 million to be presented as a reduction of revenues versus the comparative period presentation of recording rent expense as an operating expense. Overall, revenues were positively impacted by organic growth, primarily new contract wins in our U.K. business, as well as the expansion of catering logistics accounts in our U.S. business. However, this growth was partially offset by the loss of certain passenger services, facility services, and cabin cleaning accounts, as well as a negative impact from fluctuations in foreign currency exchange rates related to our U.K. business. Management reimbursement revenues for this segment totaled $95.5 million and $99.9 million during 2019 and 2018, respectively.
Operating profit decreased by $2.1 million, or 8.9%, during 2019, as compared to 2018. Operating profit margin decreased by 15 bps to 2.1% in 2019 from 2.2% in 2018. This decrease in operating profit margin was primarily attributable to operational issues on certain accounts, including higher labor costs due to a tight labor market, partially offset by higher margins on certain new contracts, including contract wins in our U.K. business.
Technology & Manufacturing
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
(Decrease) / Increase
Revenues
$
917.0

 
$
925.4

 
$
(8.4
)
 
(0.9)%
Operating profit
72.5

 
67.4

 
5.1

 
7.6%
Operating profit margin
7.9
%
 
7.3
%
 
62 bps

 
 
T&M revenues decreased by $8.4 million, or 0.9%, during 2019, as compared to 2018. The decrease was primarily attributable to the loss of certain accounts, partially offset by the expansion of existing accounts and new business.

26


Operating profit increased by $5.1 million, or 7.6%, during 2019, as compared to 2018. Operating profit margin increased by 62 bps to 7.9% in 2019 from 7.3% in 2018. The increase in operating profit margin was primarily attributable to improved margins on certain accounts and the loss of a low margin account in the prior year, partially offset by specific reserves established for client receivables.
Education
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Decrease
Revenues
$
847.4

 
$
856.7

 
$
(9.3
)
 
(1.1)%
Operating profit
39.0

 
44.1

 
(5.1
)
 
(11.4)%
Operating profit margin
4.6
%
 
5.1
%
 
(54) bps

 

Education revenues decreased by $9.3 million, or 1.1%, during 2019, as compared to 2018. The decrease was attributable to the loss of certain accounts, partially offset by new business, including the expansion of certain accounts that primarily occurred in the current year.
Operating profit decreased by $5.1 million, or 11.4%, during 2019, as compared to 2018. Operating profit margin decreased by 54 bps to 4.6% in 2019 from 5.1% in 2018. The decrease in operating profit margin was primarily attributable to changes in contract mix due to the loss of certain accounts and an increase in direct labor and related personnel costs on certain accounts driven by a challenging labor environment. The decrease was partially offset by the management of overhead and selling, general and administrative expenses due to the timing of certain synergies and lower reserves established for client receivables, including collections of previously written off receivables.
Technical Solutions
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Increase
Revenues
$
593.2

 
$
500.1

 
$
93.1

 
18.6%
Operating profit
55.4

 
21.8

 
33.6

 
NM*
Operating profit margin
9.3
%
 
4.4
%
 
497 bps

 
 
Technical Solutions revenues increased by $93.1 million, or 18.6%, during 2019, as compared to 2018. The increase was primarily attributable to growth in our U.S. business related to bundled energy solutions (“BES”) projects and power projects, partially offset by the contraction of certain accounts in our U.K. business and a negative impact from fluctuations in foreign currency exchange rates related to our U.K. business.
Operating profit increased by $33.6 million during 2019, as compared to 2018. Operating profit margin increased by 497 bps to 9.3% in 2019 from 4.4% in 2018. The increase in operating profit margin was primarily attributable to the absence of impairment charges on goodwill and customer relationships related to our U.K. business totaling $26.5 million during 2018. The increase in operating profit margin was also due to the contribution of higher project revenues in our U.S. business, lower sales commission expense in the current year due to the deferral of commissions following the adoption of Topic 606, and lower amortization expense following the impairment recognized in our U.K. business at the end of 2018. The increase was partially offset by a higher volume of lower margin power projects in our U.S. business in the current year compared to higher margin BES projects in the prior year, the loss of certain higher margin contracts in our U.K. business, and the absence of tax deductions taken in the prior year for energy efficient government buildings.

27


Corporate
 
 
 
 
 
 
 
 
Years Ended October 31,
 
 
 
 
($ in millions)
2019
 
2018
 
Decrease
Corporate expenses
$
159.0

 
$
168.8

 
$
(9.8
)
 
(5.8)%
Corporate expenses decreased by $9.8 million, or 5.8%, during 2019, as compared to 2018. The decrease in corporate expenses was primarily related to:
a $14.5 million decrease in restructuring and related expenses as a result of restructuring expenses incurred in the prior year following the acquisition of GCA, partially offset by other restructuring expenses incurred in the current year;
a $13.6 million lower adjustment to self-insurance reserves related to prior year claims;
an $11.3 million decrease in legal settlement costs;
the absence of $2.2 million of acquisition costs related to the GCA acquisition incurred in the prior year; and
$1.1 million lower compensation and related expenses.
This decrease was partially offset by:
an $18.1 million increase in technology investments and related support;
the absence of a $7.0 million reimbursement of previously expensed legal settlement costs received in the prior year;
a $3.9 million reserve established for an anticipated union pension settlement;
the absence of a $3.4 million benefit in the prior year resulting from actuarial evaluations performed on our medical and dental self-insurance plans; and
a $2.5 million reserve established for a non-recurring adjustment related to a client account.

28


The Year Ended October 31, 2018 Compared with the Year Ended October 31, 2017
Consolidated
 
Years Ended October 31,
 
 
 
 
($ in millions)
2018
 
2017
 
Increase / (Decrease)
Revenues
$
6,442.2

 
$
5,453.6

 
$
988.6

 
18.1%
Operating expenses
5,747.4

 
4,881.2

 
866.2

 
17.7%
Gross margin
10.8
%
 
10.5
%
 
29 bps

 
 
Selling, general and administrative expenses
438.0

 
436.6

 
1.4

 
0.3%
Restructuring and related expenses
25.7

 
20.9

 
4.8

 
23.1%
Amortization of intangible assets
66.0

 
31.6

 
34.4

 
NM*
Impairment loss (recovery)
26.5

 
(18.5
)
 
45.0

 
NM*
Operating profit
138.6

 
101.9

 
36.7

 
36.1%
Income from unconsolidated affiliates
3.2

 
4.2

 
(1.0
)
 
(23.9)%
Interest expense
(54.1
)
 
(19.2
)
 
34.9

 
NM*